e10vq
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
Form 10-Q
 
     
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
    FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2009
OR
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    FOR THE TRANSITION PERIOD FROM          TO          
 
COMMISSION FILE NO. 1-32637
 
GameStop Corp.
(Exact name of registrant as specified in its Charter)
 
     
Delaware
(State or other jurisdiction of
incorporation or organization)
  20-2733559
(I.R.S. Employer
Identification No.)
     
625 Westport Parkway,
Grapevine, Texas
(Address of principal executive offices)
  76051
(Zip Code)
 
Registrant’s telephone number, including area code:
(817) 424-2000
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
Number of shares of $.001 par value Class A Common Stock outstanding as of November 27, 2009: 164,767,330
 


 

 
TABLE OF CONTENTS
 
                 
        Page No.
 
 
PART I — FINANCIAL INFORMATION
  Item 1.     Financial Statements     2  
        Condensed Consolidated Balance Sheets — October 31, 2009 (unaudited), November 1, 2008 (unaudited) and January 31, 2009     2  
        Condensed Consolidated Statements of Operations (unaudited) — For the 13 weeks and 39 weeks ended October 31, 2009 and November 1, 2008     3  
        Condensed Consolidated Statement of Stockholders’ Equity (unaudited) — October 31, 2009     4  
        Condensed Consolidated Statements of Cash Flows (unaudited) — For the 39 weeks ended October 31, 2009 and November 1, 2008     5  
        Notes to Condensed Consolidated Financial Statements     6  
  Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations     25  
  Item 3.     Quantitative and Qualitative Disclosures About Market Risk     37  
  Item 4.     Controls and Procedures     38  
 
PART II — OTHER INFORMATION
  Item 1.     Legal Proceedings     38  
  Item 1A.     Risk Factors     39  
  Item 6.     Exhibits     39  
SIGNATURES     43  
EXHIBIT INDEX     44  
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


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PART I — FINANCIAL INFORMATION
 
ITEM 1.   Financial Statements
 
GAMESTOP CORP.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
                         
    October 31,
    November 1,
    January 31,
 
    2009     2008     2009  
    (Unaudited)     (Unaudited)        
    (In thousands, except per share data)  
 
ASSETS:
Current assets:
                       
Cash and cash equivalents
  $ 292,027     $ 478,056     $ 578,141  
Receivables, net
    52,543       50,730       65,981  
Merchandise inventories, net
    1,733,962       1,424,249       1,075,792  
Deferred income taxes — current
    24,503       29,200       23,615  
Prepaid taxes
    13,073       68,222        
Prepaid expenses
    61,514       56,759       59,101  
Other current assets
    16,472       45,690       15,411  
                         
Total current assets
    2,194,094       2,152,906       1,818,041  
                         
Property and equipment:
                       
Land
    11,819       10,229       10,397  
Buildings and leasehold improvements
    516,492       404,660       454,651  
Fixtures and equipment
    692,660       590,565       619,845  
                         
Total property and equipment
    1,220,971       1,005,454       1,084,893  
Less accumulated depreciation and amortization
    629,276       502,348       535,639  
                         
Net property and equipment
    591,695       503,106       549,254  
Goodwill, net
    1,931,672       1,443,782       1,862,107  
Other intangible assets
    279,567       13,388       247,790  
Deferred taxes
          28,681        
Other noncurrent assets
    38,980       21,838       35,398  
                         
Total noncurrent assets
    2,841,914       2,010,795       2,694,549  
                         
Total assets
  $ 5,036,008     $ 4,163,701     $ 4,512,590  
                         
 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
                       
Accounts payable
  $ 1,328,041     $ 1,102,639     $ 1,047,963  
Accrued liabilities
    510,296       366,147       498,253  
Taxes payable
                16,495  
                         
Total current liabilities
    1,838,337       1,468,786       1,562,711  
                         
Senior notes payable, long-term portion, net
    447,121       545,462       545,712  
Other long-term liabilities
    111,127       85,273       104,486  
                         
Total long-term liabilities
    558,248       630,735       650,198  
                         
Total liabilities
    2,396,585       2,099,521       2,212,909  
                         
Commitments and Contingencies (Note 11)
                       
Stockholders’ equity:
                       
Preferred stock — authorized 5,000 shares; no shares issued or outstanding
                 
Class A common stock — $.001 par value; authorized 300,000 shares; 164,752, 163,776 and 163,843 shares issued and outstanding, respectively
    165       164       164  
Additional paid-in-capital
    1,334,481       1,299,721       1,307,453  
Accumulated other comprehensive income (loss)
    122,944       (23,870 )     (28,426 )
Retained earnings
    1,181,833       788,165       1,020,490  
                         
Total stockholders’ equity
    2,639,423       2,064,180       2,299,681  
                         
Total liabilities and stockholders’ equity
  $ 5,036,008     $ 4,163,701     $ 4,512,590  
                         
 
See accompanying notes to condensed consolidated financial statements.


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GAMESTOP CORP.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
                                 
    13 Weeks Ended     39 Weeks Ended  
    October 31,
    November 1,
    October 31,
    November 1,
 
    2009     2008     2009     2008  
    (In thousands, except per share data)
 
    (Unaudited)  
 
Sales
  $ 1,834,727     $ 1,695,746     $ 5,553,984     $ 5,313,783  
Cost of sales
    1,311,643       1,222,317       3,993,381       3,882,825  
                                 
Gross profit
    523,084       473,429       1,560,603       1,430,958  
Selling, general and administrative expenses
    391,210       335,722       1,151,815       1,012,134  
Depreciation and amortization
    41,605       35,767       119,109       106,912  
Merger-related expenses
          16,605             16,605  
                                 
Operating earnings
    90,269       85,335       289,679       295,307  
Interest income
    (480 )     (3,672 )     (1,459 )     (10,242 )
Interest expense
    10,946       12,479       34,881       36,748  
Debt extinguishment expense
    2,461             5,323       2,331  
                                 
Earnings before income tax expense
    77,342       76,528       250,934       266,470  
Income tax expense
    25,117       29,859       89,591       100,513  
                                 
Net earnings
  $ 52,225     $ 46,669     $ 161,343     $ 165,957  
                                 
Net earnings per common share-basic
  $ 0.32     $ 0.29     $ 0.98     $ 1.02  
                                 
Weighted average shares of common stock-basic
    164,702       163,736       164,604       162,983  
                                 
Net earnings per common share-diluted
  $ 0.31     $ 0.28     $ 0.96     $ 0.99  
                                 
Weighted average shares of common stock-diluted
    168,113       167,995       167,981       167,813  
                                 
 
See accompanying notes to condensed consolidated financial statements.


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GAMESTOP CORP.
 
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
 
                                                 
    Class A
          Accumulated
             
    Common Stock     Additional
    Other
             
          Common
    Paid-in
    Comprehensive
    Retained
       
    Shares     Stock     Capital     Income (Loss)     Earnings     Total  
    (In thousands)  
    (Unaudited)  
 
Balance at January 31, 2009
    163,843     $ 164     $ 1,307,453     $ (28,426 )   $ 1,020,490     $ 2,299,681  
Comprehensive income:
                                               
Net earnings for the 39 weeks ended October 31, 2009
                            161,343       161,343  
Foreign currency translation
                      151,370             151,370  
                                                 
Total comprehensive income
                                            312,713  
                                                 
Stock-based compensation
                23,226                   23,226  
Exercise of stock options and issuance of shares upon vesting of restricted stock grants (including tax expense of $405)
    909       1       3,802                   3,803  
                                                 
Balance at October 31, 2009
    164,752     $ 165     $ 1,334,481     $ 122,944     $ 1,181,833     $ 2,639,423  
                                                 
 
See accompanying notes to condensed consolidated financial statements.


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GAMESTOP CORP.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                 
    39 Weeks Ended  
    October 31,
    November 1,
 
    2009     2008  
    (In thousands)
 
    (Unaudited)  
 
Cash flows from operating activities:
               
Net earnings
  $ 161,343     $ 165,957  
Adjustments to reconcile net earnings to net cash flows used in operating activities:
               
Depreciation and amortization (including amounts in cost of sales)
    120,315       107,913  
Amortization and retirement of deferred financing fees and issue discounts
    4,176       2,814  
Stock-based compensation expense
    23,226       28,433  
Deferred income taxes
    (5,325 )     (8,285 )
Excess tax (benefits) expense realized from exercise of stock-based awards
    453       (33,925 )
Loss on disposal of property and equipment
    4,713       3,960  
Changes in other long-term liabilities
    6,524       10,612  
Change in the value of foreign exchange contracts
    2,835       (22,027 )
Changes in operating assets and liabilities, net
               
Receivables, net
    17,012       2,736  
Merchandise inventories
    (578,288 )     (688,441 )
Prepaid expenses and other current assets
    478       (14,364 )
Prepaid income taxes and accrued income taxes payable
    (30,159 )     (39,359 )
Accounts payable and accrued liabilities
    198,848       280,391  
                 
Net cash flows used in operating activities
    (73,849 )     (203,585 )
                 
Cash flows from investing activities:
               
Purchase of property and equipment
    (122,122 )     (132,758 )
Acquisitions, net of cash acquired
    (5,208 )     (50,800 )
Other
    (13,823 )     2,429  
                 
Net cash flows used in investing activities
    (141,153 )     (181,129 )
                 
Cash flows from financing activities:
               
Repurchase of notes payable
    (100,000 )     (30,000 )
Borrowings from the revolver
    115,000        
Repayments of revolver borrowings
    (115,000 )      
Issuance of shares relating to stock options
    4,208       28,432  
Excess tax benefits (expense) realized from exercise of stock-based awards
    (453 )     33,925  
Other
    (57 )     (1,500 )
                 
Net cash flows provided by (used in) financing activities
    (96,302 )     30,857  
                 
Exchange rate effect on cash and cash equivalents
    25,190       (25,501 )
                 
Net decrease in cash and cash equivalents
    (286,114 )     (379,358 )
Cash and cash equivalents at beginning of period
    578,141       857,414  
                 
Cash and cash equivalents at end of period
  $ 292,027     $ 478,056  
                 
 
See accompanying notes to condensed consolidated financial statements.


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GAMESTOP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
 
1.   Basis of Presentation
 
GameStop Corp. (together with its predecessor companies, “GameStop,” “we,” “our,” or the “Company”), a Delaware corporation, is the world’s largest retailer of video games and entertainment software. The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. All dollar and share amounts in the consolidated financial statements and notes to the consolidated financial statements are stated in thousands of U.S. dollars unless otherwise indicated.
 
The unaudited consolidated financial statements included herein reflect all adjustments (consisting only of normal, recurring adjustments) which are, in the opinion of the Company’s management, necessary for a fair presentation of the information for the periods presented. These unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all disclosures required under GAAP for complete financial statements. These consolidated financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the 52 weeks ended January 31, 2009 (“fiscal 2008”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. Changes in the estimates and assumptions used by management could have significant impact on the Company’s financial results. Actual results could differ from those estimates.
 
Due to the seasonal nature of the business, the results of operations for the 39 weeks ended October 31, 2009 are not indicative of the results to be expected for the 52 weeks ending January 30, 2010 (“fiscal 2009”).
 
Certain reclassifications have been made to conform the prior period data to the current interim period presentation.
 
The Company evaluated subsequent events through the time of filing this Quarterly Report on Form 10-Q on December 9, 2009. No significant events occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on our condensed consolidated financial statements.
 
2.   New Accounting Pronouncements
 
In June 2009, the Financial Accounting Standards Board (“FASB”) codified accounting literature into a single source of authoritative principles, except for certain authoritative rules and interpretive releases issued by the Securities and Exchange Commission (“SEC”) which are also sources of authoritative GAAP for SEC registrants, which became effective for our Company in August 2009. Since the codification did not alter existing U.S. GAAP, it did not have an impact on our condensed consolidated financial statements. All references to pre-codified U.S. GAAP have been removed from this Form 10-Q.
 
In May 2009, the FASB issued new accounting and disclosure guidance for recognized and non-recognized subsequent events that occur after the balance sheet date but before financial statements are issued. The new guidance also requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The new guidance was effective for our Company beginning with our Quarterly Report on Form 10-Q for the period ended August 1, 2009, and is being applied prospectively. This change in accounting policy had no impact on our consolidated financial statements.


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
In April 2009, the FASB issued updated accounting guidance that requires disclosures about fair value of financial instruments for interim reporting periods and requires those disclosures in summarized financial information for publicly traded companies at interim reporting periods. The updated accounting guidance was effective for the Company for the period ended August 1, 2009. See Note 4.
 
In March 2008, the FASB amended existing disclosure requirements related to derivative and hedging activities, which became effective for the Company on February 1, 2009 and is being applied prospectively. As a result of the amended disclosure requirements, the Company is required to provide expanded qualitative and quantitative disclosures about derivatives and hedging activities in each interim and annual period. The adoption of the new disclosure requirements had no impact on our consolidated financial statements.
 
In December 2007, the FASB amended its guidance on accounting for business combinations. The new accounting guidance amends the principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. It also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. The new accounting guidance for business combinations was effective for our Company on February 1, 2009, and we will apply it prospectively to all business combinations subsequent to the effective date. The adoption of this new accounting policy did not have a significant impact on our consolidated financial statements and the impact that its adoption will have on our consolidated financial statements in future periods will depend on the nature and size of business combinations completed subsequent to the date of adoption.
 
In December 2007, the FASB issued new accounting and disclosure guidance related to noncontrolling interests in subsidiaries (previously referred to as minority interests). The updated accounting guidance requires all entities to report noncontrolling interests in subsidiaries as a component of equity in the consolidated financial statements and also establishes disclosure requirements that clearly identify and distinguish between controlling and noncontrolling interests and requires the separate disclosure of income attributable to controlling and noncontrolling interests. The new accounting guidance was effective for our Company on February 1, 2009. The adoption of this new accounting policy did not have a significant impact on our consolidated financial statements.
 
In September 2006, the FASB issued new accounting guidance which defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements. However, in February 2008, the FASB delayed the effective date of the new accounting guidance for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of this new accounting guidance for our nonfinancial assets and nonfinancial liabilities on February 1, 2009 did not have a significant impact on our consolidated financial statements.
 
3.   Business Combinations and Goodwill
 
On November 17, 2008, GameStop France SAS, a wholly-owned subsidiary of the Company, completed the acquisition of substantially all of the outstanding capital stock of Micromania for $580,407, net of cash acquired. Micromania is a leading retailer of video and computer games in France with 361 locations, 328 of which were operating on the date of the acquisition. The purpose of the acquisition was to expand the Company’s presence in Europe.


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The condensed consolidated financial statements include the results of Micromania from the date of acquisition and are reported in the European segment. The purchase price has been allocated based on estimated fair values as of the acquisition date. The purchase price was allocated as follows:
 
         
    November 17, 2008  
    (In thousands)  
 
Current assets
  $ 187,661  
Property, plant & equipment
    34,164  
Goodwill
    412,325  
Intangible assets:
       
Tradename
    131,560  
Leasehold rights and interests
    103,955  
         
Total intangible assets
    235,515  
Other long-term assets
    7,786  
Current liabilities
    (220,237 )
Long-term liabilities
    (76,807 )
         
Total purchase price
  $ 580,407  
         
 
In determining the preliminary purchase price allocation, management considered, among other factors, the Company’s intention to use the acquired assets. Revisions to the preliminary purchase price allocation may result as additional information becomes available. The total weighted-average amortization period for the intangible assets, excluding goodwill and the Micromania tradename, is approximately ten years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized, with no expected residual value. None of the goodwill is deductible for income tax purposes.
 
The acquisition of Micromania is an important part of the Company’s European and overall growth strategy and gave the Company an immediate entrance into the second largest video game market in Europe. The amount the Company paid in excess of the fair value of the net assets acquired was primarily for (i) the expected future cash flows derived from the existing business and its infrastructure, (ii) the geographical benefits from adding stores in a new large growing market without cannibalizing existing sales, (iii) expanding the Company’s expertise in the European video game market as a whole, and (iv) increasing the Company’s impact on the European market, including increasing its purchasing power.
 
On April 5, 2008, the Company purchased all the outstanding stock of Free Record Shop Norway AS, a Norwegian private limited liability company (“FRS”), for $21,006, net of cash acquired. FRS operated 49 record stores in Norway. The Company has converted the FRS stores into video game stores with an inventory assortment similar to its other stores in Norway. The acquisition was accounted for using the purchase method of accounting, with the excess of the purchase price over the net assets acquired, in the amount of $17,981, recorded as goodwill. The Company has included the results of operations of FRS, which were not material, in its financial statements beginning on the closing date of the acquisition on April 5, 2008.
 
In 2003, the Company purchased a 51% controlling interest in GameStop Group Limited, which operates stores in Ireland and the United Kingdom. Under the terms of the purchase agreement, the minority interest owners have the ability to require the Company to purchase their remaining shares in incremental percentages at a price to be determined based partially on the Company’s price to earnings ratio and GameStop Group Limited’s earnings. Shares representing approximately 16% were purchased in June 2008 for $27,383 and in July 2009 an additional 16% was purchased for $4,667, bringing the Company’s total interest in GameStop Group Limited to approximately 84%. The Company already consolidates the results of GameStop Group Limited; therefore, any additional amounts acquired will not have a material effect on the Company’s financial statements.


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
During July 2008, the Company purchased certain assets and Web site operations from The Gamesman Limited, a video game and entertainment software retailer, including eight stores in New Zealand for $1,910. The acquisition was accounted for using the purchase method of accounting, with the excess of the purchase price over the net assets acquired, in the amount of $605, recorded as goodwill.
 
The pro forma effect assuming the acquisitions of Micromania, FRS and The Gamesman Limited at the beginning of fiscal 2008 is not material to the Company’s consolidated financial statements.
 
4.   Fair Value Measurements and Financial Instruments
 
The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value accounting guidance applies to our forward exchange contracts, foreign currency options and cross-currency swaps (together, the “Foreign Currency Contracts”), Company-owned life insurance policies with a cash surrender value and certain nonqualified deferred compensation liabilities that are measured at fair value on a recurring basis in periods subsequent to initial recognition.
 
Fair value accounting guidance requires disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting our assumptions about pricing by market participants.
 
We value our Foreign Currency Contracts, Company-owned life insurance policies with cash surrender values and certain nonqualified deferred compensation liabilities based on Level 2 inputs using quotations provided by major market news services, such as Bloomberg and The Wall Street Journal, and industry-standard models that consider various assumptions, including quoted forward prices, time value, volatility factors, and contractual prices for the underlying instruments, as well as other relevant economic measures. When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.
 
The following table provides the fair value of our assets and liabilities measured on a recurring basis and recorded on our condensed consolidated balance sheets:
 
                         
    October 31, 2009     November 1, 2008     January 31, 2009  
    Level 2     Level 2     Level 2  
    (In thousands)  
 
Assets
                       
Foreign Currency Contracts
  $ 12,648     $ 42,862     $ 12,104  
Company-owned life insurance
    2,530       2,408       2,134  
                         
Total assets
  $ 15,178     $ 45,270     $ 14,238  
                         
Liabilities
                       
Foreign Currency Contracts
  $ 28,461     $ 12,418     $ 11,766  
Nonqualified deferred compensation
    1,008       1,019       905  
                         
Total liabilities
  $ 29,469     $ 13,437     $ 12,671  
                         
 
The Company uses Foreign Currency Contracts to manage currency risk primarily related to intercompany loans denominated in non-functional currencies and certain foreign currency assets and liabilities. These Foreign Currency Contracts are not designated as hedges and, therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the re-measurement of related intercompany loans and foreign currency assets and liabilities. We do not use derivative financial instruments for trading or


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
speculative purposes. We are exposed to counterparty credit risk on all of our derivative financial instruments and cash equivalent investments. The Company manages counterparty risk according to the guidelines and controls established under comprehensive risk management and investment policies. We continuously monitor our counterparty credit risk and utilize a number of different counterparties to minimize our exposure to potential defaults. We do not require collateral under derivative or investment agreements.
 
The fair values of derivative instruments not receiving hedge accounting treatment in the condensed consolidated balance sheets presented herein were as follows:
 
                         
    October 31, 2009     November 1, 2008     January 31, 2009  
          (In thousands)        
 
Assets
                       
Foreign Currency Contracts
                       
Other current assets
  $ 12,648     $ 42,460     $ 12,104  
Other noncurrent assets
          402        
Liabilities
                       
Foreign Currency Contracts
                       
Accrued liabilities
    (27,857 )     (10,411 )     (10,164 )
Other long-term liabilities
    (604 )     (2,007 )     (1,602 )
                         
Total derivatives
  $ (15,813 )   $ 30,444     $ 338  
                         
 
As of October 31, 2009, the Company had a series of Forward Currency Contracts outstanding, with a gross notional value of $540,998 and a net notional value of $242,267. For the 13 and 39 week periods ended October 31, 2009, the Company recognized losses of $2,156 and $14,997, respectively, in selling, general and administrative expenses related to the trading of derivative instruments. As of November 1, 2008, the Company had a series of Forward Currency Contracts outstanding, with a gross notional value of $1,453,328 and a net notional value of $664,939. For the 13 and 39 week periods ended November 1, 2008, the Company recognized gains of $20,522 and $12,413, respectively, in selling, general and administrative expenses related to the trading of derivative instruments.
 
The Company’s carrying value of financial instruments approximate their fair value, except for differences with respect to the senior notes. As of October 31, 2009, the carrying value of the senior notes was $447,121 and the fair value was $463,725.
 
5.   Accounting for Stock-Based Compensation
 
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. This valuation model requires the use of subjective assumptions, including expected option life, expected volatility and the expected employee forfeiture rate. The Company uses historical data to estimate the option life and the employee forfeiture rate, and uses historical volatility when estimating the stock price volatility. There were no options to purchase common stock granted during the 13 weeks ended October 31, 2009 and November 1, 2008. The options to purchase common stock granted during the 39 weeks ended October 31, 2009 and November 1, 2008 were 1,419 and 1,362, respectively, with a weighted-average fair value estimated at $9.45 and $15.45 per share, respectively, using the following assumptions:
 
                 
    39 Weeks Ended  
    October 31,
    November 1,
 
    2009     2008  
 
Volatility
    47.9 %     38.2 %
Risk-free interest rate
    1.5 %     2.4 %
Expected life (years)
    3.5       3.5  
Expected dividend yield
    0 %     0 %


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
In the 13 weeks ended October 31, 2009 and November 1, 2008, the Company included compensation expense relating to stock option grants of $3,030 and $3,916, respectively, in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. In the 39 weeks ended October 31, 2009 and November 1, 2008, the Company included compensation expense relating to stock option grants of $8,472 and $12,733, respectively, in selling, general and administrative expenses. As of October 31, 2009, the unrecognized compensation expense related to the unvested portion of our stock options was $16,362, which is expected to be recognized over a weighted average period of 1.8 years. The total intrinsic values of options exercised during the 13 weeks ended October 31, 2009 and November 1, 2008 were $648 and $3,236, respectively. The total intrinsic values of options exercised during the 39 weeks ended October 31, 2009 and November 1, 2008 were $3,375 and $86,981, respectively.
 
During the 13 weeks ended October 31, 2009 and November 1, 2008, the Company granted 43 shares and 67 shares, respectively, of restricted stock which had a fair market value of $23.43 and $43.24 per share, respectively. The restricted shares vest in equal annual installments over three years. During the 39 weeks ended October 31, 2009 and November 1, 2008, the Company granted 614 shares and 602 shares, respectively, of restricted stock which had a weighted-average fair market value of $25.84 and $49.20 per share, respectively. The restricted shares vest in equal annual installments over three years. During the 13 weeks ended October 31, 2009 and November 1, 2008, the Company included compensation expense relating to the restricted share grants in the amount of $4,946 and $4,449, respectively, in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. During the 39 weeks ended October 31, 2009 and November 1, 2008, the Company included compensation expense relating to the restricted share grants in the amount of $14,754 and $15,700, respectively, in selling, general and administrative expenses. As of October 31, 2009, there was $24,555 of unrecognized compensation expense related to nonvested restricted stock awards that is expected to be recognized over a weighted average period of 1.8 years.
 
6.   Computation of Net Earnings per Common Share
 
The Company has Class A common stock outstanding. A reconciliation of shares used in calculating basic and diluted net earnings per common share follows:
 
                                 
    13 Weeks Ended     39 Weeks Ended  
    October 31,
    November 1,
    October 31,
    November 1,
 
    2009     2008     2009     2008  
    (In thousands, except per share data)  
 
Net earnings
  $ 52,225     $ 46,669     $ 161,343     $ 165,957  
                                 
Weighted average common shares outstanding
    164,702       163,736       164,604       162,983  
Dilutive effect of options and restricted shares on common stock
    3,411       4,259       3,377       4,830  
                                 
Common shares and dilutive potential common shares
    168,113       167,995       167,981       167,813  
                                 
Net earnings per common share:
                               
Basic
  $ 0.32     $ 0.29     $ 0.98     $ 1.02  
                                 
Diluted
  $ 0.31     $ 0.28     $ 0.96     $ 0.99  
                                 


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table contains information on restricted shares and options to purchase shares of Class A common stock which were excluded from the computation of diluted earnings per share because they were anti-dilutive:
 
                         
    Anti-
  Range of
   
    Dilutive
  Exercise
  Expiration
    Shares   Prices   Dates
    (In thousands, except per share data)
 
13 Weeks Ended October 31, 2009
    3,641     $ 26.02 - 49.95       2010 - 2019  
13 Weeks Ended November 1, 2008
    1,342     $ 49.95       2010 - 2018  
 
7.   Debt
 
In October 2005, the Company entered into a five-year, $400,000 Credit Agreement (the “Revolver”), including a $50,000 letter of credit sub-limit, secured by the assets of the Company and its U.S. subsidiaries. The Revolver places certain restrictions on the Company and its subsidiaries, including limitations on asset sales, additional liens and the incurrence of additional indebtedness. In April 2007, the Company amended the Revolver to extend the maturity date from October 11, 2010 to April 25, 2012, reduce the LIBO interest rate margin, reduce and fix the rate of the unused commitment fee and modify or delete certain other covenants. The extension of the Revolver to 2012 reduces our exposure to the current tightening in the credit markets.
 
The availability under the Revolver is limited to a borrowing base which allows the Company to borrow up to the lesser of (x) approximately 70% of eligible inventory and (y) 90% of the appraisal value of the inventory, in each case plus 85% of eligible credit card receivables, net of certain reserves. Letters of credit reduce the amount available to borrow by their face value. The Company’s ability to pay cash dividends, redeem options and repurchase shares is generally prohibited, except that if availability under the Revolver is, or will be after any such payment, equal to or greater than 25% of the borrowing base, the Company may repurchase its capital stock and pay cash dividends. In addition, in the event that credit extensions under the Revolver at any time exceed 80% of the lesser of the total commitment or the borrowing base, the Company will be subject to a fixed charge coverage ratio covenant of 1.5:1.0.
 
The per annum interest rate on the Revolver is variable and, at the Company’s option, is calculated by applying a margin of (1) 0.0% to 0.25% above the higher of the prime rate of the administrative agent or the federal funds effective rate plus 0.50% or (2) 1.00% to 1.50% above the LIBO rate. The applicable margin is determined quarterly as a function of the Company’s consolidated leverage ratio. As of October 31, 2009, the applicable margin was 0.0% for prime rate loans and 1.00% for LIBO rate loans. In addition, the Company is required to pay a commitment fee of 0.25% for any unused portion of the total commitment under the Revolver. During the 39 weeks ended October 31, 2009, the Company borrowed and repaid $115,000 under the Revolver. As of October 31, 2009, there were no borrowings outstanding under the Revolver and letters of credit outstanding totaled $8,546.
 
In September 2007, the Company’s Luxembourg subsidiary entered into a discretionary $20,000 Uncommitted Line of Credit (the “Line of Credit”) with Bank of America. There is no term associated with the Line of Credit and Bank of America may withdraw the facility at any time without notice. The Line of Credit will be made available to the Company’s foreign subsidiaries for use primarily as a bank overdraft facility for short-term liquidity needs and for the issuance of bank guarantees and letters of credit to support operations. As of October 31, 2009, there were no cash overdrafts outstanding under the Line of Credit and bank guarantees outstanding totaled $5,899.
 
In September 2005, the Company, along with GameStop, Inc. as co-issuer (together with the Company, the “Issuers”), completed the offering of $650,000 aggregate principal amount of Senior Notes due 2012 (the “Notes”). The Notes were issued under an Indenture, dated September 28, 2005 (the “Indenture”), by and among the Issuers, the subsidiary guarantors party thereto, and Citibank, N.A., as trustee (the “Trustee”).
 
The Notes bear interest at 8.0% per annum, mature on October 1, 2012 and were priced at 98.688%, resulting in a discount at the time of issue of $8,528. The discount is being amortized using the effective interest method. As of October 31, 2009, the unamortized original issue discount was $2,879. The Issuers pay interest on the Notes


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
semi-annually, in arrears, every April 1 and October 1, to holders of record on the immediately preceding March 15 and September 15, and at maturity.
 
The Indenture contains affirmative and negative covenants customary for such financings, including, among other things, limitations on (1) the incurrence of additional debt, (2) restricted payments, (3) liens, (4) sale and leaseback transactions and (5) asset sales. Events of default provided for in the Indenture include, among other things, failure to pay interest or principal on the Notes, other breaches of covenants in the Indenture, and certain events of bankruptcy and insolvency. As of October 31, 2009, the Company was in compliance with all covenants associated with the Revolver and the Indenture.
 
Under certain conditions, the Issuers may on any one or more occasions prior to maturity redeem up to 100% of the aggregate principal amount of Notes issued under the Indenture at redemption prices at or in excess of 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date. The circumstances which would limit the percentage of the Notes which may be redeemed or which would require the Company to pay a premium in excess of 100% of the principal amount are defined in the Indenture. Upon a Change of Control (as defined in the Indenture), the Issuers are required to offer to purchase all of the Notes then outstanding at 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. The Issuers may acquire Notes by means other than redemption, whether by tender offer, open market purchases, negotiated transactions or otherwise, in accordance with applicable securities laws, so long as such acquisitions do not otherwise violate the terms of the Indenture.
 
As of November 1, 2008 and October 31, 2009, the only long-term debt outstanding was the Notes.
 
Between May 2006 and August 2007, the Company repurchased $70,000 of the Notes under previously announced buybacks authorized by its Board of Directors. All of the authorized amounts were repurchased and the Notes were delivered to the Trustee for cancellation.
 
On February 7, 2008, the Company announced that its Board of Directors authorized the buyback of up to an aggregate of an additional $130,000 of the Notes. The timing and amount of the repurchases was to be determined by the Company’s management based on their evaluation of market conditions and other factors. In addition, the repurchases may have been suspended or discontinued at any time. As of November 1, 2008, the Company had repurchased $30,000 of the Notes pursuant to this authorization. The associated loss on retirement of debt was $2,331, which consisted of the premium paid to retire the Notes and the write-off of the deferred financing fees and the original issue discount on the Notes. The Company did not repurchase any other Notes during fiscal 2008. In the 39 weeks ended October 31, 2009, the Company repurchased $100,000 of the Notes pursuant to this authorization. The associated loss on retirement of debt was $5,323, which consisted of the premium paid to retire the Notes and the write-off of the deferred financing fees and the original issue discount on the Notes. All Notes repurchased in fiscal 2008 and fiscal 2009 were delivered to the Trustee for cancellation and no additional buybacks have been authorized. As of October 31, 2009, there were $450,000 of outstanding Notes.
 
8.   Comprehensive income (loss)
 
Comprehensive income (loss) is net earnings, plus certain other items that are recorded directly to stockholders’ equity and consists of the following:
 
                                 
    13 Weeks Ended     39 Weeks Ended  
    October 31,
    November 1,
    October 31,
    November 1,
 
    2009     2008     2009     2008  
          (In thousands)        
 
Net earnings
  $ 52,225     $ 46,669     $ 161,343     $ 165,957  
Other comprehensive income:
                               
Foreign currency translation adjustments
    34,223       (57,254 )     151,370       (55,473 )
                                 
Total comprehensive income (loss)
  $ 86,448     $ (10,585 )   $ 312,713     $ 110,484  
                                 


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
9.   Income Taxes
 
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company is currently under examination by the Internal Revenue Service for the Company’s U.S. income tax returns for the fiscal years ended February 3, 2007 and February 2, 2008. The Company does not expect any material adjustments to its condensed consolidated financial statements as a result of these audits.
 
Our effective tax rates for the 13 weeks ended October 31, 2009 and November 1, 2008 include $251 of net tax benefit and $1,317 of net tax expense, respectively, related to amounts recorded for changes in our uncertain tax positions, including interest and penalties. Our effective tax rates for the 39 weeks ended October 31, 2009 and November 1, 2008 include $6,149 and $1,811, respectively, of net tax expense related to amounts recorded for changes in our uncertain tax positions, including interest and penalties. The components of the net change in uncertain tax positions were individually insignificant.
 
It is reasonably possible that the amount of the unrecognized benefit with respect to certain of our unrecognized tax positions could significantly increase or decrease within the next 12 months as a result of settlements of ongoing audits and statutes of limitations expiring. At this time, an estimate of the range of the reasonably possible outcomes cannot be made.
 
The tax provisions for the 13 weeks and 39 weeks ended October 31, 2009 and November 1, 2008 are based upon management’s estimate of the Company’s annualized effective tax rate.
 
10.   Certain Relationships and Related Transactions
 
The Company operates departments within eight bookstores operated by Barnes & Noble, Inc. (“Barnes & Noble”), a related party through a common stockholder who is the Chairman of the Board of Directors of Barnes & Noble and a member of the Company’s Board of Directors. The Company pays a license fee to Barnes & Noble on the gross sales of such departments. The Company deems the license fee to be reasonable and based upon terms equivalent to those that would prevail in an arm’s length transaction. During the 13 weeks ended October 31, 2009 and November 1, 2008, these charges amounted to $227 and $262, respectively. During the 39 weeks ended October 31, 2009 and November 1, 2008, these charges amounted to $688 and $846, respectively.
 
In May 2005, the Company entered into an arrangement with Barnes & Noble under which www.gamestop.com became the exclusive specialty video game retailer listed on www.bn.com, Barnes & Noble’s e-commerce site. Under the terms of this agreement, the Company pays a fee to Barnes & Noble for sales of video game or PC entertainment products sold through www.bn.com. The fee to Barnes & Noble was $40 and $70 for the 13 weeks ended October 31, 2009 and November 1, 2008, respectively, and $160 and $213 for the 39 weeks ended October 31, 2009 and November 1, 2008, respectively.
 
Until June 2005, the Company participated in Barnes & Noble’s workers’ compensation, property and general liability insurance programs. The costs incurred by Barnes & Noble under these programs were allocated to the Company based upon total payroll expense, property and equipment, and insurance claim history of the Company. Although the Company secured its own insurance coverage, costs will likely continue to be incurred by Barnes & Noble on insurance claims which were incurred under its programs prior to June 2005 and any such costs applicable to insurance claims against the Company will be allocated to the Company. During the 13 weeks ended October 31, 2009 and November 1, 2008, these charges amounted to $25 and $16, respectively. During the 39 weeks ended October 31, 2009 and November 1, 2008, these charges amounted to $130 and $120, respectively.


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
11.   Commitments and Contingencies
 
On February 14, 2005, and as amended, Steve Strickland, as personal representative of the Estate of Arnold Strickland, deceased, Henry Mealer, as personal representative of the Estate of Ace Mealer, deceased, and Willie Crump, as personal representative of the Estate of James Crump, deceased, filed a wrongful death lawsuit against GameStop, Sony, Take-Two Interactive, Rock Star Games and Wal-Mart (collectively, the “Defendants”) and Devin Moore, alleging that Defendants’ actions in designing, manufacturing, marketing and supplying Defendant Moore with violent video games were negligent and contributed to Defendant Moore killing Arnold Strickland, Ace Mealer and James Crump. Moore was found guilty of capital murder in a criminal trial and was sentenced to death in August 2005.
 
Plaintiffs’ counsel named an expert, a psychologist who testified at the criminal trial on behalf of the criminal defendant, who plaintiffs indicated would testify that violent video games were a substantial factor in causing the murders. This same testimony from this same expert was excluded in the criminal trial from the same judge hearing this case. The testimony of plaintiffs’ psychologist expert was heard by the Court on October 30, 2008, and the motion to exclude that testimony was argued on December 12, 2008.
 
On July 30, 2009, the trial court entered its Order granting summary judgment for all defendants, dismissing the case with prejudice on the grounds that plaintiffs’ expert’s testimony did not satisfy the Frye standard for expert admissibility. Subsequent to the entry of the Order, the plaintiffs filed a notice of appeal.
 
The Company does not believe there is sufficient information to estimate the amount of the possible loss, if any, resulting from the lawsuit if the plaintiffs’ appeal is successful.
 
In the ordinary course of the Company’s business, the Company is, from time to time, subject to various other legal proceedings. Management does not believe that any such other legal proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s financial condition, results of operations or liquidity.
 
12.   Significant Product Information
 
The Company is principally engaged in the sale of new and used video game systems and software, PC entertainment software and related accessories. The following table sets forth sales (in millions) by significant product category for the periods indicated:
 
                                                                 
    13 Weeks Ended     39 Weeks Ended  
    October 31,
    November 1,
    October 31,
    November 1,
 
    2009     2008     2009     2008  
          Percent
          Percent
          Percent
          Percent
 
    Sales     of Total     Sales     of Total     Sales     of Total     Sales     of Total  
    (Unaudited)  
 
Sales:
                                                               
New video game hardware
  $ 321.4       17.5 %   $ 328.4       19.3 %   $ 1,018.6       18.3 %   $ 1,047.1       19.7 %
New video game software
    769.4       41.9 %     703.3       41.5 %     2,169.7       39.1 %     2,201.1       41.4 %
Used video game products
    507.7       27.7 %     425.1       25.1 %     1,617.0       29.1 %     1,312.4       24.7 %
Other
    236.2       12.9 %     238.9       14.1 %     748.7       13.5 %     753.2       14.2 %
                                                                 
Total
  $ 1,834.7       100.0 %   $ 1,695.7       100.0 %   $ 5,554.0       100.0 %   $ 5,313.8       100.0 %
                                                                 
 
Other products include PC entertainment and other software, accessories and magazines.


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table sets forth gross profit (in millions) and gross profit percentages by significant product category for the periods indicated:
 
                                                                 
    13 Weeks Ended     39 Weeks Ended  
    October 31,
    November 1,
    October 31,
    November 1,
 
    2009     2008     2009     2008  
          Gross
          Gross
          Gross
          Gross
 
    Gross
    Profit
    Gross
    Profit
    Gross
    Profit
    Gross
    Profit
 
    Profit     Percent     Profit     Percent     Profit     Percent     Profit     Percent  
    (Unaudited)  
 
Gross Profit:
                                                               
New video game hardware
  $ 26.8       8.3 %   $ 25.4       7.7 %   $ 72.6       7.1 %   $ 68.4       6.5 %
New video game software
    173.8       22.6 %     158.5       22.5 %     472.8       21.8 %     460.4       20.9 %
Used video game products
    240.0       47.3 %     204.8       48.2 %     760.5       47.0 %     643.0       49.0 %
Other
    82.5       34.9 %     84.7       35.5 %     254.7       34.0 %     259.2       34.4 %
                                                                 
Total
  $ 523.1       28.5 %   $ 473.4       27.9 %   $ 1,560.6       28.1 %   $ 1,431.0       26.9 %
                                                                 
 
13.   Segment Information
 
The Company operates its business in the following segments: United States, Canada, Australia and Europe. Segment results for the United States include retail operations in 50 states, the District of Columbia, Guam and Puerto Rico, the electronic commerce Web site www.gamestop.com and Game Informer magazine. Segment results for Canada include retail operations in Canada and segment results for Australia include retail operations in Australia and New Zealand. Segment results for Europe include retail operations in 13 European countries. The fiscal 2009 results of the European segment include Micromania’s results.
 
The Company measures segment profit using operating earnings before merger-related expenses, which is defined as income from continuing operations before intercompany royalty fees, net interest expense and income taxes. The basis of segmentation and the measurement of segment profit or loss have not changed since the end of fiscal 2008 and there has been no material change in total assets by segment since January 31, 2009. Transactions between reportable segments consist primarily of royalties, management fees, intersegment loans and related interest. Information on segments appears in the following tables:
 
                                 
    13 Weeks Ended     39 Weeks Ended  
    October 31,
    November 1,
    October 31,
    November 1,
 
    2009     2008     2009     2008  
    (In thousands)
 
    (Unaudited)  
 
Sales by operating segment were as follows:
                               
United States
  $ 1,200,873     $ 1,278,351     $ 3,857,808     $ 3,972,394  
Canada
    115,399       116,125       303,266       359,753  
Australia
    114,190       97,906       328,707       349,314  
Europe
    404,265       203,364       1,064,203       632,322  
                                 
Total
  $ 1,834,727     $ 1,695,746     $ 5,553,984     $ 5,313,783  
                                 
Segment operating earnings excluding merger-related expenses were as follows:
                               
United States
  $ 69,014     $ 86,260     $ 245,327     $ 261,428  
Canada
    7,801       7,377       16,004       18,849  
Australia
    6,629       6,898       21,056       28,445  
Europe
    6,825       1,405       7,292       3,190  
                                 
Total
  $ 90,269     $ 101,940     $ 289,679     $ 311,912  
                                 


16


Table of Contents

 
GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
14.   Supplemental Cash Flow Information
 
                 
    39 Weeks Ended  
    October 31,
    November 1,
 
    2009     2008  
    (In thousands)
 
    (Unaudited)  
 
Cash paid during the period for:
               
Interest
  $ 43,793     $ 43,892  
                 
Income taxes
  $ 119,886     $ 143,877  
                 
 
15.   Consolidating Financial Statements
 
As described in Note 7, on September 28, 2005, the Company, along with GameStop, Inc. as co-issuer, completed the offering of the Notes. The direct and indirect U.S. wholly-owned subsidiaries of the Company, excluding GameStop, Inc., as co-issuer, have guaranteed the Notes on a senior unsecured basis with unconditional guarantees.
 
The following condensed consolidating financial statements present the financial position of the Company’s guarantor and non-guarantor subsidiaries as of October 31, 2009, November 1, 2008 and January 31, 2009 and results of operations for the 13 and 39 weeks ended October 31, 2009 and November 1, 2008 and cash flows for the 39 weeks ended October 31, 2009 and November 1, 2008.


17


Table of Contents

 
GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
GameStop Corp.
Condensed Consolidating Balance Sheet
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    October 31,
    October 31,
          October 31,
 
    2009     2009     Eliminations     2009  
    (Amounts in thousands, except per share amounts)  
          (Unaudited)        
 
ASSETS:
Current assets:
                               
Cash and cash equivalents
  $ 151,629     $ 140,398     $     $ 292,027  
Receivables, net
    241,452       683,089       (871,998 )     52,543  
Merchandise inventories, net
    1,049,944       684,018             1,733,962  
Deferred income taxes — current
    21,645       2,858             24,503  
Prepaid taxes
    (3,654 )     16,727             13,073  
Prepaid expenses
    39,866       21,648             61,514  
Other current assets
    1,398       15,074             16,472  
                                 
Total current assets
    1,502,280       1,563,812       (871,998 )     2,194,094  
                                 
Property and equipment:
                               
Land
    2,670       9,149             11,819  
Buildings and leasehold improvements
    290,335       226,157             516,492  
Fixtures and equipment
    548,581       144,079             692,660  
                                 
Total property and equipment
    841,586       379,385             1,220,971  
Less accumulated depreciation and amortization
    472,216       157,060             629,276  
                                 
Net property and equipment
    369,370       222,325             591,695  
Investment
    2,032,792             (2,032,792 )      
Goodwill, net
    1,096,622       835,050             1,931,672  
Other intangible assets
    4,345       275,222             279,567  
Other noncurrent assets
    10,058       28,922             38,980  
                                 
Total noncurrent assets
    3,513,187       1,361,519       (2,032,792 )     2,841,914  
                                 
Total assets
  $ 5,015,467     $ 2,925,331     $ (2,904,790 )   $ 5,036,008  
                                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
                               
Accounts payable
  $ 868,770     $ 459,271     $     $ 1,328,041  
Accrued liabilities
    1,004,792       377,502       (871,998 )     510,296  
                                 
Total current liabilities
    1,873,562       836,773       (871,998 )     1,838,337  
                                 
Senior notes payable, long-term portion, net
    447,121                   447,121  
Other long-term liabilities
    55,361       55,766             111,127  
                                 
Total long-term liabilities
    502,482       55,766             558,248  
                                 
Total liabilities
    2,376,044       892,539       (871,998 )     2,396,585  
                                 
Stockholders’ equity:
                               
Preferred stock — authorized 5,000 shares; no shares issued or outstanding
                       
Class A common stock — $.001 par value; authorized 300,000 shares; 164,752 shares issued and outstanding
    165                   165  
Additional paid-in-capital
    1,334,481       1,757,782       (1,757,782 )     1,334,481  
Accumulated other comprehensive income
    122,944       64,615       (64,615 )     122,944  
Retained earnings
    1,181,833       210,395       (210,395 )     1,181,833  
                                 
Total stockholders’ equity
    2,639,423       2,032,792       (2,032,792 )     2,639,423  
                                 
Total liabilities and stockholders’ equity
  $ 5,015,467     $ 2,925,331     $ (2,904,790 )   $ 5,036,008  
                                 


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
GameStop Corp.
Condensed Consolidating Balance Sheet
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    November 1,
    November 1,
          November 1,
 
    2008     2008     Eliminations     2008  
    (Amounts in thousands, except per share amounts)  
          (Unaudited)        
 
ASSETS:
Current assets:
                               
Cash and cash equivalents
  $ 233,472     $ 244,584     $     $ 478,056  
Receivables, net
    388,226       15,186       (352,682 )     50,730  
Merchandise inventories, net
    981,171       443,078             1,424,249  
Deferred income taxes — current
    26,478       2,722             29,200  
Prepaid taxes
    72,885       (4,663 )           68,222  
Prepaid expenses
    43,132       13,627             56,759  
Other current assets
    38,364       7,326             45,690  
                                 
Total current assets
    1,783,728       721,860       (352,682 )     2,152,906  
                                 
Property and equipment:
                               
Land
    2,670       7,559             10,229  
Buildings and leasehold improvements
    273,320       131,340             404,660  
Fixtures and equipment
    486,274       104,291             590,565  
                                 
Total property and equipment
    762,264       243,190             1,005,454  
Less accumulated depreciation and amortization
    410,639       91,709             502,348  
                                 
Net property and equipment
    351,625       151,481             503,106  
Investment
    539,949             (539,949 )      
Goodwill, net
    1,096,621       347,161             1,443,782  
Other intangible assets
    9,370       4,018             13,388  
Deferred taxes
    7,378       21,303             28,681  
Other noncurrent assets
    12,020       9,818             21,838  
                                 
Total noncurrent assets
    2,016,963       533,781       (539,949 )     2,010,795  
                                 
Total assets
  $ 3,800,691     $ 1,255,641     $ (892,631 )   $ 4,163,701  
                                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
                               
Accounts payable
  $ 822,089     $ 280,550     $     $ 1,102,639  
Accrued liabilities
    295,161       423,668       (352,682 )     366,147  
                                 
Total current liabilities
    1,117,250       704,218       (352,682 )     1,468,786  
                                 
Senior notes payable, long-term portion, net
    545,462                   545,462  
Other liabilities
    73,799       11,474             85,273  
                                 
Total long-term liabilities
    619,261       11,474             630,735  
                                 
Total liabilities
    1,736,511       715,692       (352,682 )     2,099,521  
                                 
Stockholders’ equity:
                               
Preferred stock — authorized 5,000 shares; no shares issued or outstanding
                       
Class A common stock — $.001 par value; authorized 300,000 shares; 163,776 shares issued and outstanding
    164                   164  
Additional paid-in-capital
    1,299,721       402,844       (402,844 )     1,299,721  
Accumulated other comprehensive income (loss)
    (23,870 )     (29,494 )     29,494       (23,870 )
Retained earnings
    788,165       166,599       (166,599 )     788,165  
                                 
Total stockholders’ equity
    2,064,180       539,949       (539,949 )     2,064,180  
                                 
Total liabilities and stockholders’ equity
  $ 3,800,691     $ 1,255,641     $ (892,631 )   $ 4,163,701  
                                 


19


Table of Contents

 
GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
GameStop Corp.
Condensed Consolidating Balance Sheet
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    January 31,
    January 31,
          January 31,
 
    2009     2009     Eliminations     2009  
    (Amounts in thousands, except per share amounts)  
 
ASSETS:
Current assets:
                               
Cash and cash equivalents
  $ 373,178     $ 204,963     $     $ 578,141  
Receivables, net
    195,677       678,203       (807,899 )     65,981  
Merchandise inventories, net
    637,257       438,535             1,075,792  
Deferred income taxes — current
    21,088       2,527             23,615  
Prepaid expenses
    40,957       18,144             59,101  
Other current assets
    6,262       9,149             15,411  
                                 
Total current assets
    1,274,419       1,351,521       (807,899 )     1,818,041  
                                 
Property and equipment:
                               
Land
    2,670       7,727             10,397  
Buildings and leasehold improvements
    281,481       173,170             454,651  
Fixtures and equipment
    509,585       110,260             619,845  
                                 
Total property and equipment
    793,736       291,157             1,084,893  
Less accumulated depreciation and amortization
    436,068       99,571             535,639  
                                 
Net property and equipment
    357,668       191,586             549,254  
Investment
    1,870,083             (1,870,083 )      
Goodwill, net
    1,096,622       765,485             1,862,107  
Other intangible assets
          247,790             247,790  
Other noncurrent assets
    5,621       29,777             35,398  
                                 
Total noncurrent assets
    3,329,994       1,234,638       (1,870,083 )     2,694,549  
                                 
Total assets
  $ 4,604,413     $ 2,586,159     $ (2,677,982 )   $ 4,512,590  
                                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
                               
Accounts payable
  $ 736,805     $ 311,158     $     $ 1,047,963  
Accrued liabilities
    985,240       320,912       (807,899 )     498,253  
Taxes payable
    2,971       13,524             16,495  
                                 
Total current liabilities
    1,725,016       645,594       (807,899 )     1,562,711  
                                 
Senior notes payable, long-term portion, net
    545,712                   545,712  
Other long-term liabilities
    34,004       70,482             104,486  
                                 
Total long-term liabilities
    579,716       70,482             650,198  
                                 
Total liabilities
    2,304,732       716,076       (807,899 )     2,212,909  
                                 
Stockholders’ equity:
                               
Preferred stock — authorized 5,000 shares; no shares issued or outstanding
                       
Class A common stock — $.001 par value; authorized 300,000 shares; 163,843 shares issued and outstanding
    164                   164  
Additional paid-in-capital
    1,307,453       1,699,630       (1,699,630 )     1,307,453  
Accumulated other comprehensive income (loss)
    (28,426 )     (33,800 )     33,800       (28,426 )
Retained earnings
    1,020,490       204,253       (204,253 )     1,020,490  
                                 
Total stockholders’ equity
    2,299,681       1,870,083       (1,870,083 )     2,299,681  
                                 
Total liabilities and stockholders’ equity
  $ 4,604,413     $ 2,586,159     $ (2,677,982 )   $ 4,512,590  
                                 


20


Table of Contents

 
GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
GameStop Corp.
Condensed Consolidating Statement of Operations
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    October 31,
    October 31,
          October 31,
 
For the 13 Weeks Ended October 31, 2009
  2009     2009     Eliminations     2009  
    (Amounts in thousands)
 
    (Unaudited)  
 
Sales
  $ 1,200,873     $ 633,854     $     $ 1,834,727  
Cost of sales
    841,623       470,020             1,311,643  
                                 
Gross profit
    359,250       163,834             523,084  
Selling, general and administrative expenses
    264,599       126,611             391,210  
Depreciation and amortization
    25,586       16,019             41,605  
                                 
Operating earnings
    69,065       21,204             90,269  
Interest income
    (10,902 )     (6,274 )     16,696       (480 )
Interest expense
    10,630       17,012       (16,696 )     10,946  
Debt extinguishment expense
    2,461                   2,461  
                                 
Earnings before income tax expense
    66,876       10,466             77,342  
Income tax expense
    19,425       5,692             25,117  
                                 
Net earnings
  $ 47,451     $ 4,774     $     $ 52,225  
                                 
 
GameStop Corp.
Condensed Consolidating Statement of Operations
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    November 1,
    November 1,
          November 1,
 
For the 13 Weeks Ended November 1, 2008
  2008     2008     Eliminations     2008  
    (Amounts in thousands)
 
    (Unaudited)  
 
Sales
  $ 1,278,351     $ 417,395     $     $ 1,695,746  
Cost of sales
    913,079       309,238             1,222,317  
                                 
Gross profit
    365,272       108,157             473,429  
Selling, general and administrative expenses
    252,449       83,273             335,722  
Depreciation and amortization
    26,563       9,204             35,767  
Merger-related expenses
    16,605                   16,605  
                                 
Operating earnings
    69,655       15,680             85,335  
Interest income
    (6,420 )     (5,117 )     7,865       (3,672 )
Interest expense
    12,072       8,272       (7,865 )     12,479  
                                 
Earnings before income tax expense
    64,003       12,525             76,528  
Income tax expense
    24,640       5,219             29,859  
                                 
Net earnings
  $ 39,363     $ 7,306     $     $ 46,669  
                                 


21


Table of Contents

 
GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
GameStop Corp.
Condensed Consolidating Statement of Operations
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    October 31,
    October 31,
          October 31,
 
For the 39 Weeks Ended October 31, 2009
  2009     2009     Eliminations     2009  
    (Amounts in thousands)
 
    (Unaudited)  
 
Sales
  $ 3,857,808     $ 1,696,176     $     $ 5,553,984  
Cost of sales
    2,741,355       1,252,026             3,993,381  
                                 
Gross profit
    1,116,453       444,150             1,560,603  
Selling, general and administrative expenses
    795,758       356,057             1,151,815  
Depreciation and amortization
    75,337       43,772             119,109  
                                 
Operating earnings
    245,358       44,321             289,679  
Interest income
    (33,108 )     (7,433 )     39,082       (1,459 )
Interest expense
    34,111       39,852       (39,082 )     34,881  
Debt extinguishment expense
    5,323                   5,323  
                                 
Earnings before income tax expense
    239,032       11,902             250,934  
Income tax expense
    79,354       10,237             89,591  
                                 
Net earnings
  $ 159,678     $ 1,665     $     $ 161,343  
                                 
 
GameStop Corp.
Condensed Consolidating Statement of Operations
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    November 1,
    November 1,
          November 1,
 
For the 39 Weeks Ended November 1, 2008
  2008     2008     Eliminations     2008  
    (Amounts in thousands)
 
    (Unaudited)  
 
Sales
  $ 3,972,394     $ 1,341,389     $     $ 5,313,783  
Cost of sales
    2,879,882       1,002,943             3,882,825  
                                 
Gross profit
    1,092,512       338,446             1,430,958  
Selling, general and administrative expenses
    752,554       259,580             1,012,134  
Depreciation and amortization
    78,530       28,382             106,912  
Merger-related expenses
    16,605                   16,605  
                                 
Operating earnings
    244,823       50,484             295,307  
Interest income
    (19,294 )     (18,639 )     27,691       (10,242 )
Interest expense
    36,753       27,686       (27,691 )     36,748  
Debt extinguishment expense
    2,331                   2,331  
                                 
Earnings before income tax expense
    225,033       41,437             266,470  
Income tax expense
    83,961       16,552             100,513  
                                 
Net earnings
  $ 141,072     $ 24,885     $     $ 165,957  
                                 


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
GameStop Corp.
Condensed Consolidating Statement of Cash Flows
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    October 31,
    October 31,
          October 31,
 
For the 39 Weeks Ended October 31, 2009
  2009     2009     Eliminations     2009  
    (Amounts in thousands)
 
    (Unaudited)  
 
Cash flows from operating activities:
                               
Net earnings
  $ 159,687     $ 1,656     $     $ 161,343  
Adjustments to reconcile net earnings to net cash flows provided by (used in) operating activities:
                               
Depreciation and amortization (including amounts in cost of sales)
    76,483       43,832             120,315  
Amortization and retirement of deferred financing fees and issue discounts
    4,176                   4,176  
Stock-based compensation expense
    23,226                   23,226  
Deferred income taxes
    (557 )     (4,768 )           (5,325 )
Excess tax expense realized from exercise of stock-based awards
    453                   453  
Loss on disposal of property and equipment
    1,936       2,777             4,713  
Changes in other long-term liabilities
    7,750       (1,226 )           6,524  
Change in the value of foreign exchange contracts
    2,336       499             2,835  
Changes in operating assets and liabilities, net
                               
Receivables, net
    12,947       4,065             17,012  
Merchandise inventories
    (412,687 )     (165,601 )           (578,288 )
Prepaid expenses and other current assets
    1,092       (614 )           478  
Prepaid income taxes and accrued income taxes payable
    278       (30,437 )           (30,159 )
Accounts payable and accrued liabilities
    86,775       112,073             198,848  
                                 
Net cash flows used in operating activities
    (36,105 )     (37,744 )           (73,849 )
                                 
Cash flows from investing activities:
                               
Purchase of property and equipment
    (88,388 )     (33,734 )           (122,122 )
Acquisitions, net of cash acquired
          (5,208 )           (5,208 )
Other
    (754 )     (13,069 )           (13,823 )
                                 
Net cash flows used in investing activities
    (89,142 )     (52,011 )           (141,153 )
                                 
Cash flows from financing activities:
                               
Repurchase of notes payable
    (100,000 )                 (100,000 )
Borrowings from the revolver
    115,000                   115,000  
Repayments of revolver borrowings
    (115,000 )                 (115,000 )
Issuance of shares relating to stock options
    4,208                   4,208  
Excess tax expense realized from exercise of stock-based awards
    (453 )                 (453 )
Other
    (57 )                 (57 )
                                 
Net cash flows used in financing activities
    (96,302 )                 (96,302 )
                                 
Exchange rate effect on cash and cash equivalents
          25,190             25,190  
                                 
Net decrease in cash and cash equivalents
    (221,549 )     (64,565 )           (286,114 )
Cash and cash equivalents at beginning of period
    373,178       204,963             578,141  
                                 
Cash and cash equivalents at end of period
  $ 151,629     $ 140,398     $     $ 292,027  
                                 


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
GameStop Corp.
Condensed Consolidating Statement of Cash Flows
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    November 1,
    November 1,
          November 1,
 
For the 39 Weeks Ended November 1, 2008
  2008     2008     Eliminations     2008  
    (Amounts in thousands)
 
    (Unaudited)  
 
Cash flows from operating activities:
                               
Net earnings
  $ 141,072     $ 24,885     $     $ 165,957  
Adjustments to reconcile net earnings to net cash flows provided by (used in) operating activities:
                               
Depreciation and amortization (including amounts in cost of sales)
    79,477       28,436             107,913  
Amortization and retirement of deferred financing fees and issue discounts
    2,814                   2,814  
Stock-based compensation expense
    28,433                   28,433  
Deferred income taxes
    (2,324 )     (5,961 )           (8,285 )
Excess tax benefits realized from exercise of stock-based awards
    (33,925 )                 (33,925 )
Loss on disposal of property and equipment
    1,569       2,391             3,960  
Changes in other long-term liabilities
    8,451       2,161             10,612  
Change in the value of foreign exchange contracts
    (22,239 )     212             (22,027 )
Changes in operating assets and liabilities, net
                               
Receivables, net
    (2,141 )     4,877             2,736  
Merchandise inventories
    (479,311 )     (209,130 )           (688,441 )
Prepaid expenses and other current assets
    (9,017 )     (5,347 )           (14,364 )
Prepaid income taxes and accrued income taxes payable
    (29,659 )     (9,700 )           (39,359 )
Accounts payable and accrued liabilities
    (68,353 )     348,744             280,391  
                                 
Net cash flows provided by (used in) operating activities
    (385,153 )     181,568             (203,585 )
                                 
Cash flows from investing activities:
                               
Purchase of property and equipment
    (85,355 )     (47,403 )           (132,758 )
Acquisitions, net of cash acquired
          (50,800 )           (50,800 )
Other
    1,790       639             2,429  
                                 
Net cash flows used in investing activities
    (83,565 )     (97,564 )           (181,129 )
                                 
Cash flows from financing activities:
                               
Repurchase of notes payable
    (30,000 )                 (30,000 )
Issuance of shares relating to stock options
    28,432                   28,432  
Excess tax benefits realized from exercise of stock-based awards
    33,925                   33,925  
Other
    (1,500 )                 (1,500 )
                                 
Net cash flows provided by (used in) financing activities
    30,857                   30,857  
                                 
Exchange rate effect on cash and cash equivalents
          (25,501 )           (25,501 )
                                 
Net increase (decrease) in cash and cash equivalents
    (437,861 )     58,503             (379,358 )
Cash and cash equivalents at beginning of period
    671,333       186,081             857,414  
                                 
Cash and cash equivalents at end of period
  $ 233,472     $ 244,584     $     $ 478,056  
                                 


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Table of Contents

ITEM 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion should be read in conjunction with the information contained in our consolidated financial statements, including the notes thereto. Statements regarding future economic performance, management’s plans and objectives, and any statements concerning assumptions related to the foregoing contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements. Certain factors, which may cause actual results to vary materially from these forward-looking statements, accompany such statements or appear in GameStop’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009 filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2009 (the “Form 10-K”), including the factors disclosed under “Item 1A. Risk Factors.”
 
General
 
GameStop Corp. (together with its predecessor companies, “GameStop,” “we,” “our,” or the “Company”) is the world’s largest retailer of video game products and PC entertainment software. We sell new and used video game hardware, video game software and accessories, as well as PC entertainment software and related accessories and other merchandise. As of October 31, 2009, we operated 6,391 stores in the United States, Australia, Canada and Europe, primarily under the names GameStop and EB Games. We also operate an electronic commerce Web site under the name www.gamestop.com and publish Game Informer, the industry’s largest multi-platform video game magazine in the United States based on circulation.
 
Our fiscal year is composed of 52 or 53 weeks ending on the Saturday closest to January 31. The fiscal years ending January 30, 2010 (“fiscal 2009”) and ended January 31, 2009 (“fiscal 2008”) consist of 52 weeks.
 
On November 17, 2008, GameStop France SAS, a wholly-owned subsidiary of the Company, completed the acquisition of substantially all of the outstanding capital stock of SFMI Micromania SAS (“Micromania”) for $580.4 million, net of cash acquired in the transaction (the “Micromania acquisition”). Micromania is a leading retailer of video and computer games in France with 361 locations, 328 of which were operating on the date of acquisition. The Company’s operating results for the 13 and 39 week periods ended October 31, 2009 include Micromania’s results, whereas the operating results of the comparable periods of fiscal 2008 exclude Micromania’s results.
 
Growth in the video game industry is driven by the introduction of new technology. In 2005 in the North American markets, Sony introduced the PlayStation Portable (the “PSP”) in March and Microsoft introduced the Xbox 360 in November. In November 2006, Nintendo introduced the Wii hardware platform worldwide and Sony introduced the PlayStation 3 hardware platform in the North American markets. Sony introduced the PlayStation 3 platform in the Australian and European markets in March 2007. Typically, following the introduction of new video game platforms, sales of new video game hardware increase as a percentage of total sales in the first full year following introduction. As video game platforms mature, the sales mix attributable to complementary video game software and accessories, which generate higher gross margins, generally increases in the subsequent years. The net effect is generally a decline in gross margins in the first full year following new platform releases and an increase in gross margins in the years subsequent to the first full year following the launch period. Unit sales of maturing video game platforms are typically also driven by manufacturer-funded retail price reductions, further driving sales of related software and accessories. We expect that the installed base of the hardware platforms listed above and sales of related software and accessories will increase in the future, subject to the timing of the release of new video game titles and the impact of the overall worldwide economy.
 
Critical Accounting Policies
 
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and do not include all disclosures required under GAAP for complete financial statements. Preparation of these statements requires management to make judgments and estimates. Some accounting policies have a significant impact on amounts reported in these financial statements. For a summary of significant accounting policies and the means by which we develop estimates thereon, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2008 Annual Report on Form 10-K.


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Consolidated Results of Operations
 
The following table sets forth certain statement of operations items as a percentage of sales for the periods indicated:
 
                                 
    13 Weeks Ended     39 Weeks Ended  
    October 31,
    November 1,
    October 31,
    November 1,
 
    2009     2008     2009     2008  
 
Statement of Operations Data:
                               
Sales
    100.0 %     100.0 %     100.0 %     100.0 %
Cost of sales
    71.5       72.1       71.9       73.1  
                                 
Gross profit
    28.5       27.9       28.1       26.9  
Selling, general and administrative expenses
    21.3       19.8       20.7       19.0  
Depreciation and amortization
    2.3       2.1       2.2       2.0  
Merger-related expenses
          1.0             0.3  
                                 
Operating earnings
    4.9       5.0       5.2       5.6  
Interest expense, net
    0.6       0.5       0.6       0.5  
Debt extinguishment expense
    0.1             0.1       0.1  
                                 
Earnings before income tax expense
    4.2       4.5       4.5       5.0  
Income tax expense
    1.4       1.7       1.6       1.9  
                                 
Net earnings
    2.8 %     2.8 %     2.9 %     3.1 %
                                 
 
The Company continually reviews the financial performance of its stores and seeks to increase profitability by relocating or closing selected stores. During the 39 weeks ended October 31, 2009, the Company closed 126 stores, 28 of which were in the third quarter. The store closings included many locations in which we operated a GameStop store and a former EB Games store in very close proximity and the determination was made to close one of the locations upon the expiration of the store lease.
 
The Company includes purchasing, receiving and distribution costs in selling, general and administrative expenses, rather than cost of goods sold, in the statement of operations. For the 13 weeks ended October 31, 2009 and November 1, 2008, these purchasing, receiving and distribution costs amounted to $15.6 million and $12.6 million, respectively. For the 39 weeks ended October 31, 2009 and November 1, 2008, these purchasing, receiving and distribution costs amounted to $45.2 million and $38.5 million, respectively. The Company includes processing fees associated with purchases made by check and credit cards in cost of sales, rather than selling, general and administrative expenses, in the statement of operations. For the 13 weeks ended October 31, 2009 and November 1, 2008, these processing fees amounted to $12.1 million and $12.5 million, respectively. For the 39 weeks ended October 31, 2009 and November 1, 2008, these processing fees amounted to $36.7 million and $39.1 million, respectively. As a result of these classifications, our gross margins are not comparable to those retailers that include purchasing, receiving and distribution costs in cost of sales and include processing fees associated with purchases made by check and credit cards in selling, general and administrative expenses. The reclassifications had a net effect of 0.2% of sales or less for all periods presented herein.


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The following table sets forth sales (in millions) by significant product category for the periods indicated:
 
                                                                 
    13 Weeks Ended     39 Weeks Ended  
    October 31,
    November 1,
    October 31,
    November 1,
 
    2009     2008     2009     2008  
          Percent
          Percent
          Percent
          Percent
 
    Sales     of Total     Sales     of Total     Sales     of Total     Sales     of Total  
    (Unaudited)  
 
Sales:
                                                               
New video game hardware
  $ 321.4       17.5 %   $ 328.4       19.3 %   $ 1,018.6       18.3 %   $ 1,047.1       19.7 %
New video game software
    769.4       41.9 %     703.3       41.5 %     2,169.7       39.1 %     2,201.1       41.4 %
Used video game products
    507.7       27.7 %     425.1       25.1 %     1,617.0       29.1 %     1,312.4       24.7 %
Other
    236.2       12.9 %     238.9       14.1 %     748.7       13.5 %     753.2       14.2 %
                                                                 
Total
  $ 1,834.7       100.0 %   $ 1,695.7       100.0 %   $ 5,554.0       100.0 %   $ 5,313.8       100.0 %
                                                                 
 
Other products include PC entertainment and other software, accessories and magazines.
 
The following table sets forth gross profit (in millions) and gross profit percentages by significant product category for the periods indicated:
 
                                                                 
    13 Weeks Ended     39 Weeks Ended  
    October 31,
    November 1,
    October 31,
    November 1,
 
    2009     2008     2009     2008  
          Gross
          Gross
          Gross
          Gross
 
    Gross
    Profit
    Gross
    Profit
    Gross
    Profit
    Gross
    Profit
 
    Profit     Percent     Profit     Percent     Profit     Percent     Profit     Percent  
    (Unaudited)  
 
Gross Profit:
                                                               
New video game hardware
  $ 26.8       8.3 %   $ 25.4       7.7 %   $ 72.6       7.1 %   $ 68.4       6.5 %
New video game software
    173.8       22.6 %     158.5       22.5 %     472.8       21.8 %     460.4       20.9 %
Used video game products
    240.0       47.3 %     204.8       48.2 %     760.5       47.0 %     643.0       49.0 %
Other
    82.5       34.9 %     84.7       35.5 %     254.7       34.0 %     259.2       34.4 %
                                                                 
Total
  $ 523.1       28.5 %   $ 473.4       27.9 %   $ 1,560.6       28.1 %   $ 1,431.0       26.9 %
                                                                 
 
13 weeks ended October 31, 2009 compared with the 13 weeks ended November 1, 2008
 
Sales increased by $139.0 million, or 8.2%, from $1,695.7 million in the 13 weeks ended November 1, 2008 to $1,834.7 million in the 13 weeks ended October 31, 2009. The increase in sales was primarily attributable to the addition of non-comparable store sales from the 616 stores opened since August 2, 2008 combined with the additional sales from the Micromania acquisition for an approximate total of $250.7 million and increases related to changes in foreign exchange rates of $18.3 million. These increases were partially offset by the comparable store sales decrease of 7.8% for the third quarter of fiscal 2009. Stores are included in our comparable store sales base beginning in the thirteenth month of operation and exclude the effect of changes in foreign exchange rates. The decrease in comparable store sales was due primarily to a slow-down in hardware unit sell-through and the decrease in average selling prices of hardware units, as well as a decrease in consumer traffic as a result of the macroeconomic weakness during the third quarter of fiscal 2009.
 
New video game hardware sales decreased $7.0 million, or 2.1%, from $328.4 million in the 13 weeks ended November 1, 2008 to $321.4 million in the 13 weeks ended October 31, 2009, primarily due to the factors discussed above, offset by increases related to new and acquired stores. New video game software sales increased $66.1 million, or 9.4%, from $703.3 million in the 13 weeks ended November 1, 2008 to $769.4 million in the 13 weeks ended October 31, 2009, primarily due to increases related to new and acquired stores. Used video game product sales increased $82.6 million, or 19.4%, from $425.1 million in the 13 weeks ended November 1, 2008 to $507.7 million in the 13 weeks ended October 31, 2009. Used video game product sales increased due to an increase in store count and an increase in the availability of hardware and software associated with the current generation


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hardware platforms as those platforms age and expand. Sales of other product categories declined by 1.1%, or $2.7 million, from the 13 weeks ended November 1, 2008 to the 13 weeks ended October 31, 2009.
 
As a percentage of sales, new video game hardware and the other product category decreased and new video game software and used video game products increased in the 13 weeks ended October 31, 2009 compared to the 13 weeks ended November 1, 2008. This was primarily due to a slow-down in hardware unit sell-through, as well as increased used video game product sales as this business continues to expand, particularly internationally.
 
Cost of sales increased by $89.3 million, or 7.3%, from $1,222.3 million in the 13 weeks ended November 1, 2008 to $1,311.6 million in the 13 weeks ended October 31, 2009 as a result of the increase in sales and the changes in gross profit discussed below.
 
Gross profit increased by $49.7 million, or 10.5%, from $473.4 million in the 13 weeks ended November 1, 2008 to $523.1 million in the 13 weeks ended October 31, 2009. Gross profit as a percentage of sales increased from 27.9% in the 13 weeks ended November 1, 2008 to 28.5% in the 13 weeks ended October 31, 2009. The gross profit percentage increase was caused primarily by the increase in higher margin used video game product sales and new video game software as a percentage of total sales in the third quarter of fiscal 2009 and the decrease in sales from new video game hardware as a percentage of total sales. Gross profit as a percentage of sales on new video game hardware increased from 7.7% in the prior year quarter to 8.3% of sales this quarter, primarily due to an increase in sales of product replacement plans during the third quarter of fiscal 2009. Gross profit as a percentage of sales on new video game software had no significant change from the same period in the prior fiscal year. Gross profit as a percentage of sales on used video game products decreased from 48.2% in the 13 weeks ended November 1, 2008 to 47.3% in the 13 weeks ended October 31, 2009, primarily due to increased sales of used products in the international segments as a percentage of total sales. International used product sales have a lower margin due to the immaturity of the used business model in those segments.
 
Selling, general and administrative expenses increased by $55.5 million, or 16.5%, from $335.7 million in the 13 weeks ended November 1, 2008 to $391.2 million in the 13 weeks ended October 31, 2009. This increase was primarily attributable to the increase in the number of stores in operation and the related increases in store, distribution and corporate office operating expenses. Selling, general and administrative expenses as a percent of sales increased from 19.8% in the 13 weeks ended November 1, 2008 to 21.3% in the 13 weeks ended October 31, 2009. The increase in the selling, general and administrative expenses as a percentage of sales was primarily due to deleveraging of fixed costs as a result of the decrease in comparable store sales in the third quarter of fiscal 2009. Included in selling, general and administrative expenses is $8.0 million and $8.4 million in stock-based compensation expense for the 13 weeks ended October 31, 2009 and November 1, 2008, respectively.
 
Depreciation and amortization expense increased $5.8 million from $35.8 million in the 13 weeks ended November 1, 2008 to $41.6 million in the 13 weeks ended October 31, 2009. This increase was primarily due to the acquisition of Micromania, capital expenditures associated with the opening of 86 new stores during the third quarter of fiscal 2009 and investments in management information systems.
 
The Company’s results of operations for the 13 weeks ended November 1, 2008 include $16.6 million in expenses associated with the Micromania acquisition on November 17, 2008. The merger-related expenses consisted of losses associated with the change in foreign exchange rates related to the funding of the Micromania acquisition.
 
Interest income resulting from the investment of excess cash balances decreased from $3.7 million in the 13 weeks ended November 1, 2008 to $0.5 million in the 13 weeks ended October 31, 2009 due primarily to lower invested cash balances and lower interest rates. Interest expense decreased from $12.5 million in the 13 weeks ended November 1, 2008 to $10.9 million in the 13 weeks ended October 31, 2009, primarily due to the retirement of $100.0 million of the Company’s senior notes since November 1, 2008. Debt extinguishment expense of $2.5 million was recognized in the 13 weeks ended October 31, 2009 as a result of premiums paid related to debt retirement and the recognition of deferred financing fees and unamortized original issue discount.
 
Income tax expense for the 13 weeks ended November 1, 2008 and the 13 weeks ended October 31, 2009 was based upon management’s estimate of the Company’s annualized effective tax rate. Income tax expense was $29.9 million, or 39.0%, of earnings before income tax expense for the 13 weeks ended November 1, 2008


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compared to $25.1 million, or 32.5% for the 13 weeks ended October 31, 2009. The decrease in the effective income tax rate in the 13 weeks ended October 31, 2009 was due to variability in the accounting related to the Company’s uncertain tax positions.
 
The factors described above led to an increase in operating earnings of $5.0 million, or 5.9%, from $85.3 million in the 13 weeks ended November 1, 2008 to $90.3 million in the 13 weeks ended October 31, 2009, and an increase in net earnings of $5.5 million, or 11.8%, from $46.7 million in the 13 weeks ended November 1, 2008 to $52.2 million in the 13 weeks ended October 31, 2009.
 
39 weeks ended October 31, 2009 compared with the 39 weeks ended November 1, 2008
 
Sales increased by $240.2 million, or 4.5%, from $5,313.8 million in the 39 weeks ended November 1, 2008 to $5,554.0 million in the 39 weeks ended October 31, 2009. The increase in sales was attributable to the addition of non-comparable store sales from the 951 stores opened since February 2, 2008, combined with additional sales from the Micromania acquisition for an approximate total of $736.2 million, offset by a decrease in comparable store sales of 7.8% and decreases related to changes in foreign exchange rates of $129.2 million for the 39-week period ended October 31, 2009 when compared to the 39-week period ended November 1, 2008. The decrease in comparable store sales was due primarily to weaker new title releases in fiscal 2009 when compared to fiscal 2008, which included several strong video game titles, as well as weak consumer traffic worldwide and a slow-down in hardware unit sell-through.
 
New video game hardware sales decreased $28.5 million, or 2.7%, from $1,047.1 million in the 39 weeks ended November 1, 2008 to $1,018.6 million in the 39 weeks ended October 31, 2009, primarily due to a decrease in consumer traffic as a result of the continued macroeconomic weakness, partially offset by the additional sales at the new stores added since last year through growth and acquisition. New video game software sales decreased $31.4 million, or 1.4%, from $2,201.1 million in the 39 weeks ended November 1, 2008 to $2,169.7 million in the 39 weeks ended October 31, 2009, primarily due to a decrease in consumer traffic and a lack of new video game titles released in fiscal 2009, compared to fiscal 2008, offset by sales from new and acquired stores added since last year. Used video game product sales increased $304.6 million, or 23.2%, from $1,312.4 million in the 39 weeks ended November 1, 2008 to $1,617.0 million in the 39 weeks ended October 31, 2009. Used video game product sales increased due to the additional sales at new stores added since last year through growth and acquisition, as well as an increase in the availability of hardware and software associated with the current generation hardware platforms as those platforms age and expand. Sales of other product categories declined slightly by 0.6%, or $4.5 million, from the 39 weeks ended November 1, 2008 to the 39 weeks ended October 31, 2009.
 
As a percentage of sales, used video game products increased and new video game hardware, new video game software and other product sales decreased in the 39 weeks ended October 31, 2009 compared to the 39 weeks ended November 1, 2008. This was primarily due to a decrease in sales of new video game software due to a lack of new software titles released in fiscal 2009 when compared to fiscal 2008, a slow-down in hardware unit sell-through, as well as an increase in sales of used video game products as this business continues to expand, particularly internationally.
 
Cost of sales increased by $110.6 million, or 2.8%, from $3,882.8 million in the 39 weeks ended November 1, 2008 to $3,993.4 million in the 39 weeks ended October 31, 2009 primarily as a result of the increase in sales and the changes in gross profit discussed below.
 
Gross profit increased by $129.6 million, or 9.1%, from $1,431.0 million in the 39 weeks ended November 1, 2008 to $1,560.6 million in the 39 weeks ended October 31, 2009. Gross profit as a percentage of sales increased from 26.9% in the 39 weeks ended November 1, 2008 to 28.1% in the 39 weeks ended October 31, 2009. The gross profit percentage increase was caused primarily by the increase in higher margin used video game product sales as a percentage of total sales in the 39 weeks ended October 31, 2009 when compared to the 39 weeks ended November 1, 2008. Gross profit as a percentage of sales on new video game hardware increased from 6.5% of sales for the 39 weeks ended November 1, 2008 to 7.1% for the 39 weeks ended October 31, 2009, primarily due to an increase in sales of product replacement plans during fiscal 2009. Gross profit as a percentage of sales on new video game software increased from 20.9% for the 39 weeks ended November 1, 2008 to 21.8% for the 39 weeks ended October 31, 2009, primarily due to the mix of software sales and margin in the various countries in which we


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operate. Gross profit as a percentage of sales on used video game products decreased from 49.0% for the 39 weeks ended November 1, 2008 to 47.0% for the 39 weeks ended October 31, 2009, primarily due to increased sales of used products in the international segments as a percentage of total sales. International used product sales have a lower margin due to the immaturity of the used business model in those segments. Gross profit as a percentage of sales on the other product sales category decreased slightly in fiscal 2009 when compared to fiscal 2008.
 
Selling, general and administrative expenses increased by $139.7 million, or 13.8%, from $1,012.1 million in the 39 weeks ended November 1, 2008 to $1,151.8 million in the 39 weeks ended October 31, 2009. This increase was primarily attributable to the increase in the number of stores in operation and related increases in store, distribution and corporate office operating expenses during fiscal 2009. Selling, general and administrative expenses as a percentage of sales increased from 19.0% in the 39 weeks ended November 1, 2008 to 20.7% in the 39 weeks ended October 31, 2009. The increase in selling, general and administrative expenses as a percentage of sales was primarily due to deleveraging of fixed costs as a result of the decrease in comparable store sales in fiscal 2009. Selling, general and administrative expenses include $23.2 million and $28.4 million in stock-based compensation expense for the 39 weeks ended October 31, 2009 and November 1, 2008, respectively.
 
Depreciation and amortization expense increased $12.2 million from $106.9 million for the 39 weeks ended November 1, 2008 to $119.1 million in the 39 weeks ended October 31, 2009. This increase was primarily due to the acquisition of Micromania, capital expenditures associated with the opening of 310 new stores during the 39 weeks ended October 31, 2009 and investments in management information systems.
 
As discussed previously, the Company’s results of operations for the 39 weeks ended November 1, 2008 include $16.6 million in merger-related expenses associated with the acquisition of Micromania.
 
Interest income resulting from the investment of excess cash balances decreased from $10.2 million in the 39 weeks ended November 1, 2008 to $1.5 million in the 39 weeks ended October 31, 2009, due primarily to lower invested cash balances and lower interest rates during fiscal 2009. Interest expense decreased from $36.7 million in the 39 weeks ended November 1, 2008 to $34.9 million in the 39 weeks ended October 31, 2009, primarily due to the retirement of $100.0 million of the Company’s senior notes since November 1, 2008 offset by short term borrowings on the revolver. Debt extinguishment expense of $5.3 million and $2.3 million was recognized in the 39 weeks ended October 31, 2009 and November 1, 2008, respectively, as a result of premiums paid related to debt retirement and the recognition of deferred financing fees and unamortized original issue discount.
 
Income tax expense for the 39 weeks ended November 1, 2008 and the 39 weeks ended October 31, 2009 was based upon management’s estimate of the Company’s annualized effective tax rate. Income tax expense was $100.5 million for the 39 weeks ended November 1, 2008 compared to $89.6 million for the 39 weeks ended October 31, 2009.
 
The factors described above led to a decrease in operating earnings of $5.6 million, or 1.9%, from $295.3 million in the 39 weeks ended November 1, 2008 to $289.7 million in the 39 weeks ended October 31, 2009, and a decrease in net earnings of $4.7 million, or 2.8%, from $166.0 million in the 39 weeks ended November 1, 2008 to $161.3 million in the 39 weeks ended October 31, 2009.


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Segment Performance
 
The Company operates its business in the following segments: United States, Australia, Canada and Europe. The following tables provide a summary of our sales and operating earnings by reportable segment and do not include merger-related expenses:
 
                                 
    13 Weeks Ended     39 Weeks Ended  
    October 31,
    November 1,
    October 31,
    November 1,
 
    2009     2008     2009     2008  
    (In millions)
 
    (Unaudited)  
 
Sales by operating segment are as follows:
                               
United States
  $ 1,200.9     $ 1,278.4     $ 3,857.8     $ 3,972.4  
Canada
    115.4       116.1       303.3       359.8  
Australia
    114.2       97.9       328.7       349.3  
Europe
    404.2       203.3       1,064.2       632.3  
                                 
Total
  $ 1,834.7     $ 1,695.7     $ 5,554.0     $ 5,313.8  
                                 
Operating earnings by operating segment excluding merger-related expenses are as follows:
                               
United States
  $ 69.0     $ 86.2     $ 245.3     $ 261.4  
Canada
    7.8       7.4       16.0       18.9  
Australia
    6.6       6.9       21.1       28.4  
Europe
    6.9       1.4       7.3       3.2  
                                 
Total
  $ 90.3     $ 101.9     $ 289.7     $ 311.9  
                                 
 
United States
 
Segment results for the United States include retail operations in 50 states, the District of Columbia, Guam and Puerto Rico, the electronic commerce Web site www.gamestop.com and Game Informer magazine. As of October 31, 2009, the United States segment included 4,403 GameStop stores, compared to 4,264 stores on November 1, 2008. Sales for the 13 and 39 weeks ended October 31, 2009 decreased 6.1% and 2.9%, respectively, compared to the 13 and 39 weeks ended November 1, 2008 as a result of decreased sales at existing stores offset by the opening of 333 stores since August 2, 2008 and 487 stores since February 2, 2008, including 48 and 172 stores in the 13 and 39 weeks ended October 31, 2009, respectively. Sales at existing stores decreased partially due to a decrease in consumer traffic as a result of the continued macroeconomic weakness and a slow-down in hardware unit sales, offset by an increase in used video game product sales due to an increase in the availability of hardware and software associated with the current generation hardware platforms as those platforms age and expand. Segment operating income for the 13 and 39 weeks ended October 31, 2009 decreased by 20.0% and 6.2%, respectively, compared to the 13 and 39 weeks ended November 1, 2008 due to the impact of lower revenues and the deleveraging of selling, general and administrative expenses for fiscal 2009.
 
Canada
 
As of October 31, 2009, the Canadian segment had 340 stores compared to 318 stores as of November 1, 2008. Sales in the Canadian segment in the 13 and 39 weeks ended October 31, 2009 decreased 0.6% and 15.7%, respectively, compared to the 13 and 39 weeks ended November 1, 2008. The decrease in sales was primarily attributable to decreased sales at existing stores offset by the additional sales at the 24 and 53 stores opened since August 2, 2008 and February 2, 2008, respectively. The decrease in sales at existing stores was primarily due to weak consumer traffic and a slow-down in hardware unit sell-through. Segment operating income for the 13 weeks ended October 31, 2009 increased by 5.4% compared to the 13 weeks ended November 1, 2008, primarily due to the increase in higher margin used video game product sales as a percentage of total sales for the 13 weeks ended October 31, 2009 when compared to the prior year, offset by decreases in sales discussed above and the related


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margins. Segment operating income for the 39 weeks ended October 31, 2009 decreased by 15.3% compared to the 39 weeks ended November 1, 2008 primarily due to decreases in sales as discussed above, as well as the unfavorable impact of changes in exchange rates which had the effect of decreasing operating earnings by $1.5 million for the 39 weeks ended October 31, 2009 when compared to the prior year.
 
Australia
 
Segment results for Australia include retail operations in Australia and New Zealand. As of October 31, 2009, the Australian segment included 379 stores, compared to 337 at November 1, 2008. Sales for the 13 weeks ended October 31, 2009 increased by 16.6% when compared to the 13 weeks ended November 1, 2008, and decreased 5.9% in the 39 weeks ended October 31, 2009 when compared to the 39 weeks ended November 1, 2008. The increase in sales for the 13 weeks ended October 31, 2009 was primarily due to additional sales at the 65 stores opened since August 2, 2008 and the favorable impact of changes in exchange rates, which had the effect of increasing sales by $10.6 million for the 13 weeks ended October 31, 2009 when compared to the prior year. The decrease in sales for the 39 weeks ended October 31, 2009 was primarily due to the unfavorable impact of changes in exchange rates, which had the effect of decreasing sales by $47.4 million for the 39 weeks ended October 31, 2009 when compared to the prior year, offset by the additional sales at the 102 stores opened since February 2, 2008. Segment operating income in the 13 and 39 weeks ended October 31, 2009 decreased by 4.3% and 25.7%, respectively, when compared to the 13 and 39 weeks ended November 1, 2008. The decrease in operating income in the 13 weeks ended October 31, 2009 was primarily due to the lower gross margin percentage as a result of the costs of promotional programs conducted during the quarter and higher selling, general and administrative expenses associated with the increase in the number of stores in operation, offset by the favorable impact of changes in foreign currency exchange rates of $0.8 million. The decrease in operating earnings for the 39 weeks ended October 31, 2009 was due to the decrease in sales at existing stores and the increase in selling, general and administrative expenses associated with the increase in the number of stores in operation, as well as the unfavorable impact of changes in exchange rates which had the effect of decreasing operating earnings by $2.9 million for the 39-week period ended October 31, 2009 when compared to the prior year.
 
Europe
 
Segment results for Europe include retail operations in 13 European countries. As of October 31, 2009, the European segment operated 1,269 stores compared to 815 stores as of November 1, 2008. For the 13 and 39 weeks ended October 31, 2009, European sales increased 98.8% and 68.3%, respectively, compared to the 13 and 39 weeks ended November 1, 2008. The increase in sales was primarily due to the additional sales at the 555 and 670 stores opened since August 2, 2008 and February 2, 2008, respectively, including 328 stores from the Micromania acquisition. Also contributing to the increase in sales for the 13 weeks ended October 31, 2009 was the favorable impact of changes in exchange rates recognized in the 13 weeks ended October 31, 2009 compared to the prior year period, which had the effect of increasing sales by $7.0 million. The increase in sales for the 39 weeks ended October 31, 2009 was due to the additional sales at the new and acquired stores discussed above, offset by the unfavorable exchange rates recognized in the 39 weeks ended October 31, 2009 compared to the prior year period, which had the effect of decreasing sales by $58.1 million, as well as a decrease in sales at existing stores. The decrease in sales at existing stores was primarily driven by weak consumer traffic due to continued macroeconomic weakness, a slow-down in hardware unit sell-through and a lack of new video game title releases in fiscal 2009.
 
The segment operating income in Europe for the 13 and 39 weeks ended October 31, 2009 increased to $6.9 million and $7.3 million, respectively, compared to the 13 and 39 weeks ended November 1, 2008 of $1.4 million and $3.2 million, respectively. The increase in operating earnings was primarily driven by the operating results contributed by Micromania. In addition, for the 13 and 39 weeks ended October 31, 2009, changes in exchange rates when compared to the prior year had the effect of increasing operating earnings by $0.7 million and $2.4 million, respectively.
 
Seasonality
 
The Company’s business, like that of many retailers, is seasonal, with the major portion of the sales and operating profit realized during the fiscal quarter which includes the holiday selling season.


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Liquidity and Capital Resources
 
Cash Flows
 
During the 39 weeks ended October 31, 2009, cash used in operations was $73.8 million, compared to cash used in operations of $203.6 million during the 39 weeks ended November 1, 2008. The decrease in cash used in operations of $129.8 million from the 39 weeks ended November 1, 2008 to the 39 weeks ended October 31, 2009 was primarily due to a decrease in cash used for working capital purposes of $67.0 million, primarily driven by the decrease in inventory net of the decrease in accounts payable and accrued liabilities. This decrease in cash used was a result of decreased purchases in fiscal 2009 compared to fiscal 2008, primarily due to a decrease in hardware sales as a result of the continued macroeconomic weakness and the lack of new titles available this year. Inventory turnover also decreased in fiscal 2009 compared to fiscal 2008, primarily due to the growth in the international segments which have lower inventory turns compared to the United States segment due to their lower overall store count and multiple warehouse facilities. In addition, net cash flows used in operations decreased due to an increase in cash provided by net earnings, including the non-cash adjustments to net earnings of $28.4 million and an increase in the operating activities adjustment related to the excess tax benefits realized from the exercise of stock-based awards of $34.4 million.
 
Cash used in investing activities was $141.2 million and $181.1 million during the 39 weeks ended October 31, 2009 and November 1, 2008, respectively. During the 39 weeks ended October 31, 2009, $122.1 million and $13.8 million of cash was used primarily to open new stores in the U.S. and internationally and to invest in information systems. In addition, during the 39 weeks ended October 31, 2009, the Company used $5.2 million for acquisitions, primarily related to the purchase of an increased ownership interest in GameStop Group Limited. During the 39 weeks ended November 1, 2008, $132.8 million of cash was used primarily to open new stores in the U.S. and internationally and to invest in information systems. In addition, the Company used $50.8 million, net of cash acquired, to acquire Free Record Shop Norway AS, a Norwegian private limited liability company (“FRS”), The Gamesman Limited and an increased ownership interest in GameStop Group Limited.
 
Cash used in financing activities was $96.3 million for the 39 weeks ended October 31, 2009 and cash provided by financing activities for the 39 weeks ended November 1, 2008 was $30.9 million. The cash used in financing activities for the 39 weeks ended October 31, 2009 was primarily due to the repurchase of $100.0 million of principal value of the Company’s senior notes. The cash provided by financing activities for the 39 weeks ended November 1, 2008 was primarily due to the issuance of shares relating to stock option exercises of $28.4 million and $33.9 million for the realization of tax benefits relating to the stock option exercises and vested restricted stock, respectively, offset by the repurchase of $30.0 million of principal value of the Company’s senior notes.
 
Sources of Liquidity
 
We utilize cash generated from operations and have funds available to us under our revolving credit facility to cover seasonal fluctuations in cash flows and to support our various growth initiatives. Our cash and cash equivalents are carried at cost, which approximates market value, and consist primarily of time deposits with highly rated commercial banks and money market investment funds holding direct U.S. Treasury obligations.
 
In October 2005, the Company entered into a five-year, $400 million Credit Agreement (the “Revolver”), including a $50 million letter of credit sub-limit, secured by the assets of the Company and its U.S. subsidiaries. The Revolver places certain restrictions on the Company and its subsidiaries, including limitations on asset sales, additional liens and the incurrence of additional indebtedness. In April 2007, the Company amended the Revolver to extend the maturity date from October 11, 2010 to April 25, 2012, reduce the LIBO interest rate margin, reduce and fix the rate of the unused commitment fee and modify or delete certain other covenants. The extension of the Revolver to 2012 reduces our exposure to the current tightening in the credit markets.
 
The availability under the Revolver is limited to a borrowing base which allows the Company to borrow up to the lesser of (x) approximately 70% of eligible inventory and (y) 90% of the appraisal value of the inventory, in each case plus 85% of eligible credit card receivables, net of certain reserves. Letters of credit reduce the amount available to borrow by their face value. The Company’s ability to pay cash dividends, redeem options and repurchase shares is generally prohibited, except that if availability under the Revolver is, or will be after any such


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payment, equal to or greater than 25% of the borrowing base, the Company may repurchase its capital stock and pay cash dividends. In addition, in the event that credit extensions under the Revolver at any time exceed 80% of the lesser of the total commitment or the borrowing base, the Company will be subject to a fixed charge coverage ratio covenant of 1.5:1.0.
 
The per annum interest rate on the Revolver is variable and, at the Company’s option, is calculated by applying a margin of (1) 0.0% to 0.25% above the higher of the prime rate of the administrative agent or the federal funds effective rate plus 0.50% or (2) 1.00% to 1.50% above the LIBO rate. The applicable margin is determined quarterly as a function of the Company’s consolidated leverage ratio. As of October 31, 2009, the applicable margin was 0.0% for prime rate loans and 1.00% for LIBO rate loans. In addition, the Company is required to pay a commitment fee of 0.25% for any unused portion of the total commitment under the Revolver. During the 39 weeks ended October 31, 2009, the Company borrowed and repaid $115 million under the Revolver. As of October 31, 2009, there were no borrowings outstanding under the Revolver and letters of credit outstanding totaled $8.5 million.
 
In September 2007, the Company’s Luxembourg subsidiary entered into a discretionary $20 million Uncommitted Line of Credit (the “Line of Credit”) with Bank of America. There is no term associated with the Line of Credit and Bank of America may withdraw the facility at any time without notice. The Line of Credit will be made available to the Company’s foreign subsidiaries for use primarily as a bank overdraft facility for short-term liquidity needs and for the issuance of bank guarantees and letters of credit to support operations. As of October 31, 2009, there were no cash overdrafts outstanding under the Line of Credit and bank guarantees outstanding totaled $5.9 million.
 
In September 2005, the Company, along with GameStop, Inc. as co-issuer (together with the Company, the “Issuers”), completed the offering of $650 million aggregate principal amount of Senior Notes due 2012 (the “Notes”). The Notes were issued under an Indenture, dated September 28, 2005 (the “Indenture”), by and among the Issuers, the subsidiary guarantors party thereto, and Citibank, N.A., as trustee (the “Trustee”).
 
The Notes bear interest at 8.0% per annum, mature on October 1, 2012 and were priced at 98.688%, resulting in a discount at the time of issue of $8.5 million. The discount is being amortized using the effective interest method. As of October 31, 2009, the unamortized original issue discount was $2.9 million. The Issuers pay interest on the Notes semi-annually, in arrears, every April 1 and October 1, to holders of record on the immediately preceding March 15 and September 15, and at maturity.
 
The Indenture contains affirmative and negative covenants customary for such financings, including, among other things, limitations on (1) the incurrence of additional debt, (2) restricted payments, (3) liens, (4) sale and leaseback transactions and (5) asset sales. Events of default provided for in the Indenture include, among other things, failure to pay interest or principal on the Notes, other breaches of covenants in the Indenture, and certain events of bankruptcy and insolvency. As of October 31, 2009, the Company was in compliance with all covenants associated with the Revolver and the Indenture.
 
Under certain conditions, the Issuers may on any one or more occasions prior to maturity redeem up to 100% of the aggregate principal amount of Notes issued under the Indenture at redemption prices at or in excess of 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date. The circumstances which would limit the percentage of the Notes which may be redeemed or which would require the Company to pay a premium in excess of 100% of the principal amount are defined in the Indenture. Upon a Change of Control (as defined in the Indenture), the Issuers are required to offer to purchase all of the Notes then outstanding at 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. The Issuers may acquire Notes by means other than redemption, whether by tender offer, open market purchases, negotiated transactions or otherwise, in accordance with applicable securities laws, so long as such acquisitions do not otherwise violate the terms of the Indenture.
 
Uses of Capital
 
Our future capital requirements will depend on the number of new stores opened and the timing of those openings within a given fiscal year. The Company opened 310 stores in the 39 weeks ended October 31, 2009 and expects to open approximately 400 stores in total during fiscal 2009. Capital expenditures for fiscal 2009 are


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projected to be approximately $175 million, which will be used primarily to fund new store openings and invest in distribution and information systems in support of operations.
 
Between May 2006 and August 2007, the Company repurchased $70 million of the Notes under previously announced buybacks authorized by its Board of Directors. All of the authorized amounts were repurchased and the Notes were delivered to the Trustee for cancellation.
 
On February 7, 2008, the Company announced that its Board of Directors authorized the buyback of up to an aggregate of an additional $130 million of the Notes. The timing and amount of the repurchases was to be determined by the Company’s management based on their evaluation of market conditions and other factors. In addition, the repurchases may have been suspended or discontinued at any time. As of November 1, 2008, the Company had repurchased $30 million of the Notes pursuant to this authorization. The associated loss on retirement of debt was $2.3 million, which consisted of the premium paid to retire the Notes and the write-off of the deferred financing fees and the original issue discount on the Notes. The Company did not repurchase any other Notes during fiscal 2008. In the 39 weeks ended October 31, 2009, the Company repurchased $100 million of the Notes pursuant to this authorization. The associated loss on retirement of debt was $5.3 million, which consisted of the premium paid to retire the Notes and the write-off of the deferred financing fees and the original issue discount on the Notes. All Notes repurchased in fiscal 2008 and fiscal 2009 were delivered to the Trustee for cancellation and no additional buybacks have been authorized. As of October 31, 2009, there were $450 million of outstanding Notes.
 
We used cash to expand the Company through acquisitions during fiscal 2008. On April 5, 2008, the Company purchased all the outstanding stock of FRS for $21.0 million, net of cash acquired. FRS operated 49 record stores in Norway and also operated office and warehouse facilities in Oslo, Norway. The Company converted these stores into video game stores with an inventory assortment similar to its other stores in Norway.
 
In 2003, the Company purchased a 51% controlling interest in GameStop Group Limited which operates stores in Ireland and the United Kingdom. Under the terms of the purchase agreement, the minority interest owners have the ability to require the Company to purchase their remaining shares in incremental percentages at a price to be determined based partially on the Company’s price to earnings ratio and GameStop Group Limited’s earnings. In June 2008, the minority interest owners exercised their right to sell one-third of their shares, or approximately 16% of GameStop Group Limited, to the Company under the terms of the original purchase agreement for $27.4 million. In July 2009, an additional 16% was purchased for $4.7 million, bringing the Company’s total interest in GameStop Group Limited to approximately 84%.
 
On November 17, 2008, GameStop France SAS, a wholly owned subsidiary of GameStop, completed the acquisition of substantially all of the outstanding capital stock of SFMI Micromania from L Capital, LV Capital, Europ@web and other shareholders of Micromania for approximately $580.4 million, net of cash acquired. Micromania is a leading retailer of video and computer games in France with 361 locations as of October 31, 2009. The Company funded the transaction with cash on hand, a draw on the Revolver totaling $275.0 million, and a $150.0 million junior term loan facility (the “Term Loans”). As of January 31, 2009, the Revolver and the Term Loans were repaid in full.
 
Based on our current operating plans and despite the continued weakness of the overall economy, we believe that available cash balances, cash generated from our operating activities and funds available under the Revolver will be sufficient to fund our operations, required payments on the Notes, store expansion and remodeling activities and corporate capital expenditure programs for at least the next 12 months.
 
Recent Accounting Policies
 
In May 2009, the Financial Accounting Standards Board (“FASB”) issued new accounting and disclosure guidance for recognized and non-recognized subsequent events that occur after the balance sheet date but before financial statements are issued. The new guidance also requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The new guidance was effective for our Company beginning with our Quarterly Report on Form 10-Q for the period ended August 1, 2009, and is being applied prospectively. This change in accounting policy had no impact on our consolidated financial statements.


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In April 2009, the FASB issued updated accounting guidance that requires disclosures about fair value of financial instruments for interim reporting periods and requires those disclosures in summarized financial information for publicly traded companies at interim reporting periods. The updated accounting guidance was effective for our Company for the period ended August 1, 2009 and has been reflected in Note 4 of our “Notes to Condensed Consolidated Financial Statements.”
 
In March 2008, the FASB amended existing disclosure requirements related to derivative and hedging activities, which became effective for the Company on February 1, 2009 and is being applied prospectively. As a result of the amended disclosure requirements, the Company is required to provide expanded qualitative and quantitative disclosures about derivatives and hedging activities in each interim and annual period. The adoption of the new disclosure requirements had no impact on our consolidated financial statements.
 
In December 2007, the FASB amended its guidance on accounting for business combinations. The new accounting guidance amends the principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. It also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. The new accounting guidance for business combinations was effective for our Company on February 1, 2009, and we will apply it prospectively to all business combinations subsequent to the effective date. The adoption of this new accounting policy did not have a significant impact on our consolidated financial statements and the impact that its adoption will have on our consolidated financial statements in future periods will depend on the nature and size of business combinations completed subsequent to the date of adoption.
 
In December 2007, the FASB issued new accounting and disclosure guidance related to noncontrolling interests in subsidiaries (previously referred to as minority interests). The updated accounting guidance requires all entities to report noncontrolling interests in subsidiaries as a component of equity in the consolidated financial statements and also establishes disclosure requirements that clearly identify and distinguish between controlling and noncontrolling interests and requires the separate disclosure of income attributable to controlling and noncontrolling interests. The new accounting guidance was effective for our Company on February 1, 2009. The adoption of this new accounting policy did not have a significant impact on our consolidated financial statements.
 
In September 2006, the FASB issued new accounting guidance which defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements. However, in February 2008, the FASB delayed the effective date of the new accounting guidance for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of this new accounting guidance for our nonfinancial assets and nonfinancial liabilities on February 1, 2009 did not have a significant impact on our consolidated financial statements.
 
Disclosure Regarding Forward-looking Statements
 
This report on Form 10-Q and other oral and written statements made by the Company to the public contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements involve a number of risks and uncertainties. A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, but are not limited to:
 
  •  our reliance on suppliers and vendors for sufficient quantities of their products and for new product releases;
 
  •  general economic conditions in the U.S. and internationally and specifically, economic conditions affecting the electronic game industry, the retail industry and the banking and financial services market;
 
  •  the competitive environment in the electronic game industry;
 
  •  our ability to open and operate new stores;


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  •  alternate sources of distribution of video game software;
 
  •  our ability to attract and retain qualified personnel;
 
  •  the impact and costs of litigation and regulatory compliance;
 
  •  unanticipated litigation results;
 
  •  the risks involved with our international operations; and
 
  •  other factors described in the Form 10-K, including those set forth under the caption “Item 1A. Risk Factors.”
 
In some cases, forward-looking statements can be identified by the use of terms such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “pro forma,” “should,” “seeks,” “will” or similar expressions. These statements are only predictions based on current expectations and assumptions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. You should not place undue reliance on these forward-looking statements.
 
Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Form 10-Q. In light of these risks and uncertainties, the forward-looking events and circumstances contained in this Form 10-Q may not occur, causing actual results to differ materially from those anticipated or implied by our forward-looking statements.
 
ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk
 
Interest Rate Exposure
 
We do not use derivative financial instruments to hedge interest rate exposure. We limit our interest rate risks by investing our excess cash balances in short-term, highly-liquid instruments with a maturity of one year or less. In addition, the Notes outstanding carry a fixed interest rate. We do not expect any material losses from our invested cash balances, and we believe that our interest rate exposure is modest.
 
Foreign Currency Risk
 
The Company uses forward exchange contracts, foreign currency options and cross-currency swaps (together, the “Foreign Currency Contracts”) to manage currency risk primarily related to intercompany loans denominated in non-functional currencies and certain foreign currency assets and liabilities. The Foreign Currency Contracts are not designated as hedges and, therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the re-measurement of related intercompany loans and foreign currency assets and liabilities. For the 13 and 39 week periods ended October 31, 2009, the Company recognized a $2.2 million and $15.0 million loss, respectively, in selling, general and administrative expenses related to the trading of derivative instruments. The aggregate fair value of the Foreign Currency Contracts as of October 31, 2009 was a liability of $15.8 million as measured by observable inputs obtained from market news reporting services, such as Bloomberg and The Wall Street Journal, and industry-standard models that consider various assumptions, including quoted forward prices, time value, volatility factors, and contractual prices for the underlying instruments, as well as other relevant economic measures. A hypothetical strengthening or weakening of 10% in the foreign exchange rates underlying the Foreign Currency Contracts from the market rate as of October 31, 2009 would result in a (loss) or gain in value of the forwards, options and swaps of ($26.3 million) or $26.3 million, respectively.
 
We do not use derivative financial instruments for trading or speculative purposes. We are exposed to counterparty credit risk on all of our derivative financial instruments and cash equivalent investments. The Company manages counterparty risk according to the guidelines and controls established under comprehensive risk


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management and investment policies. We continuously monitor our counterparty credit risk and utilize a number of different counterparties to minimize our exposure to potential defaults. We do not require collateral under derivative or investment agreements.
 
ITEM 4.   Controls and Procedures
 
(a) Evaluation of Disclosure Controls and Procedures
 
As of the end of the period covered by this report, the Company’s management conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) at the reasonable assurance level. Based on this evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and that the Company’s disclosure controls and procedures are effective at the reasonable assurance level. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.
 
(b) Changes in Internal Control Over Financial Reporting
 
There was no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Micromania operates on different information technology systems than the Company. The Company is currently evaluating the internal control processes at Micromania and changes to certain processes, information technology systems, and other components of internal controls resulting from this evaluation may occur.
 
PART II — OTHER INFORMATION
 
ITEM 1.   Legal Proceedings
 
On February 14, 2005, and as amended, Steve Strickland, as personal representative of the Estate of Arnold Strickland, deceased, Henry Mealer, as personal representative of the Estate of Ace Mealer, deceased, and Willie Crump, as personal representative of the Estate of James Crump, deceased, filed a wrongful death lawsuit against GameStop, Sony, Take-Two Interactive, Rock Star Games and Wal-Mart (collectively, the “Defendants”) and Devin Moore, alleging that Defendants’ actions in designing, manufacturing, marketing and supplying Defendant Moore with violent video games were negligent and contributed to Defendant Moore killing Arnold Strickland, Ace Mealer and James Crump. Moore was found guilty of capital murder in a criminal trial and was sentenced to death in August 2005.
 
Plaintiffs’ counsel named an expert, a psychologist who testified at the criminal trial on behalf of the criminal defendant, who plaintiffs indicated would testify that violent video games were a substantial factor in causing the murders. This same testimony from this same expert was excluded in the criminal trial from the same judge hearing this case. The testimony of plaintiffs’ psychologist expert was heard by the Court on October 30, 2008, and the motion to exclude that testimony was argued on December 12, 2008.
 
On July 30, 2009, the trial court entered its Order granting summary judgment for all defendants, dismissing the case with prejudice on the grounds that plaintiffs’ expert’s testimony did not satisfy the Frye standard for expert admissibility. Subsequent to the entry of the Order, the plaintiffs filed a notice of appeal.
 
The Company does not believe there is sufficient information to estimate the amount of the possible loss, if any, resulting from the lawsuit if the plaintiffs’ appeal is successful.


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In the ordinary course of our business, the Company is, from time to time, subject to various other legal proceedings. Management does not believe that any such other legal proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s financial condition, results of operations or liquidity.
 
There have been no other material developments in previously reported legal proceedings during the fiscal quarter covered by this Form 10-Q.
 
ITEM 1A.   Risk Factors
 
In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in “Item 1A. Risk Factors” in our Form 10-K for the fiscal year ended January 31, 2009 filed with the SEC on April 1, 2009. These risks could materially and adversely affect our business, financial condition and results of operations. The risks described in our Form 10-K have not changed materially, however, they are not the only risks we face. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.
 
ITEM 6.   Exhibits
 
Exhibits
 
         
Exhibit
   
Number
 
Description
 
  2 .1   Agreement and Plan of Merger, dated as of April 17, 2005, among GameStop Corp. (f/k/a GSC Holdings Corp.), Electronics Boutique Holdings Corp., GameStop, Inc., GameStop Holdings Corp. (f/k/a GameStop Corp.), Cowboy Subsidiary LLC and Eagle Subsidiary LLC.(1)
  2 .2   Sale and Purchase Agreement, dated September 30, 2008, between EB International Holdings, Inc. and L Capital, LV Capital, Europ@Web and other Micromania shareholders.(2)
  2 .3   Amendment, dated November 17, 2008, to Sale and Purchase Agreement for Micromania Acquisition listed as Exhibit 2.2 above.(3)
  3 .1   Second Amended and Restated Certificate of Incorporation.(4)
  3 .2   Amended and Restated Bylaws.(5)
  4 .1   Indenture, dated September 28, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors party thereto, and Citibank N.A., as trustee.(6)
  4 .2   First Supplemental Indenture, dated October 8, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors party thereto, and Citibank N.A., as trustee.(7)
  4 .3   Rights Agreement, dated as of June 27, 2005, between GameStop Corp. (f/k/a GSC Holdings Corp.) and The Bank of New York, as Rights Agent.(5)
  4 .4   Form of Indenture.(8)
  10 .1   Insurance Agreement, dated as of January 1, 2002, between Barnes & Noble, Inc. and GameStop Holdings Corp. (f/k/a GameStop Corp.).(9)
  10 .2   Operating Agreement, dated as of January 1, 2002, between Barnes & Noble, Inc. and GameStop Holdings Corp. (f/k/a GameStop Corp.).(9)
  10 .3   Fourth Amended and Restated 2001 Incentive Plan.(17)
  10 .4   Second Amended and Restated Supplemental Compensation Plan.(11)
  10 .5   Form of Option Agreement.(12)
  10 .6   Form of Restricted Share Agreement.(13)
  10 .7   Credit Agreement, dated as of October 11, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A. and the other lending institutions listed in the Agreement, Bank of America, N.A. and Citicorp North America, Inc., as Issuing Banks, Bank of America, N.A., as Administrative Agent and Collateral Agent, Citicorp North America, Inc., as Syndication Agent, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Documentation Agent.(14)


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Exhibit
   
Number
 
Description
 
  10 .8   Guaranty, dated as of October 11, 2005, by GameStop Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop Corp. in favor of the agents and lenders.(14)
  10 .9   Security Agreement, dated October 11, 2005, by GameStop Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop Corp. in favor of Bank of America, N.A., as Collateral Agent for the Secured Parties.(14)
  10 .10   Patent and Trademark Security Agreement, dated as of October 11, 2005 by GameStop Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop Corp. in favor of Bank of America, N.A., as Collateral Agent.(14)
  10 .11   Mortgage, Security Agreement, and Assignment and Deeds of Trust, dated October 11, 2005, between GameStop of Texas, L.P. and Bank of America, N.A., as Collateral Agent.(14)
  10 .12   Mortgage, Security Agreement, and Assignment and Deeds of Trust, dated October 11, 2005, between Electronics Boutique of America, Inc. and Bank of America, N.A., as Collateral Agent.(14)
  10 .13   Form of Securities Collateral Pledge Agreement, dated as of October 11, 2005.(14)
  10 .14   First Amendment, dated April 25, 2007, to Credit Agreement, dated as of October 11, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A. and the other lending institutions listed in the Amendment, Bank of America, N.A. and Citicorp North America, Inc., as Issuing Banks, Bank of America, N.A., as Administrative Agent and Collateral Agent, Citicorp North America, Inc., as Syndication Agent, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Documentation Agent.(15)
  10 .15   Second Amendment, dated as of October 23, 2008, to Credit Agreement, dated as of October 11, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A. and the other lending institutions listed in the Amendment, Bank of America, N.A. and Citicorp North America, Inc., as Issuing Banks, Bank of America, N.A., as Administrative Agent and Collateral Agent, Citicorp North America, Inc., as Syndication Agent, and GE Business Financial Services, Inc., as Documentation Agent.(3)
  10 .16   Term Loan Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, Bank of America, N.A., as Administrative Agent and Collateral Agent, and Banc of America Securities LLC, as Sole Arranger and Bookrunner.(3)
  10 .17   Security Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender and Bank of America, N.A., as Collateral Agent.(3)
  10 .18   Patent and Trademark Security Agreement, dated as of November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, and Bank of America, N.A., as Collateral Agent.(3)
  10 .19   Securities Collateral Pledge Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, and Bank of America, N.A., as Collateral Agent.(3)
  10 .20   Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and R. Richard Fontaine.(10)
  10 .21   Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Daniel A. DeMatteo.(10)
  10 .22   Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and David W. Carlson.(10)
  10 .23   Amendment to Amended and Restated Executive Employment Agreement, dated August 24, 2009, between GameStop Corp. and David W. Carlson.(16)
  10 .24   Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Tony Bartel.(10)
  10 .25   Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and J. Paul Raines.(10)


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Exhibit
   
Number
 
Description
 
  10 .26   Executive Employment Agreement, dated August 24, 2009, between GameStop Corp. and Catherine Smith.(16)
  31 .1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31 .2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32 .1   Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32 .2   Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  101 .INS   XBRL Instance Document
  101 .SCH   XBRL Taxonomy Extension Schema
  101 .CAL   XBRL Taxonomy Extension Calculation Linkbase
  101 .DEF   XBRL Taxonomy Extension Definition Linkbase
  101 .LAB   XBRL Taxonomy Extension Label Linkbase
  101 .PRE   XBRL Taxonomy Extension Presentation Linkbase
 
 
(1) Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on April 18, 2005.
 
(2) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 2, 2008.
 
(3) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 18, 2008.
 
(4) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 7, 2007.
 
(5) Incorporated by reference to the Registrant’s Amendment No. 1 to Form S-4 filed with the Securities and Exchange Commission on July 8, 2005.
 
(6) Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on September 30, 2005.
 
(7) Incorporated by reference to the Registrant’s Form 10-Q for the fiscal quarter ended October 29, 2005 filed with the Securities and Exchange Commission on December 8, 2005.
 
(8) Incorporated by reference to the Registrant’s Form S-3ASR filed with the Securities and Exchange Commission on April 10, 2006.
 
(9) Incorporated by reference to GameStop Holdings Corp.’s Amendment No. 3 to Form S-1 filed with the Securities and Exchange Commission on January 24, 2002.
 
(10) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 7, 2009.
 
(11) Incorporated by reference to Appendix A to the Registrant’s Proxy Statement for 2008 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on May 23, 2008.
 
(12) Incorporated by reference to GameStop Holdings Corp.’s Form 10-K for the fiscal year ended January 29, 2005 filed with the Securities and Exchange Commission on April 11, 2005.
 
(13) Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on September 12, 2005.


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(14) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 12, 2005.
 
(15) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on April 26, 2007.
 
(16) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 25, 2009.
 
(17) Incorporated by reference to Appendix A to the Registrant’s Proxy Statement for 2009 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on May 22, 2009.


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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
GAMESTOP CORP.
 
  By: 
/s/  Catherine R. Smith
Catherine R. Smith
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
 
Date: December 9, 2009
 
GAMESTOP CORP.
 
  By: 
/s/  Robert A. Lloyd
Robert A. Lloyd
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
 
Date: December 9, 2009


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GAMESTOP CORP.
 
EXHIBIT INDEX
 
         
Exhibit
   
Number
 
Description
 
  2 .1   Agreement and Plan of Merger, dated as of April 17, 2005, among GameStop Corp. (f/k/a GSC Holdings Corp.), Electronics Boutique Holdings Corp., GameStop, Inc., GameStop Holdings Corp. (f/k/a GameStop Corp.), Cowboy Subsidiary LLC and Eagle Subsidiary LLC.(1)
  2 .2   Sale and Purchase Agreement, dated September 30, 2008, between EB International Holdings, Inc. and L Capital, LV Capital, Europ@Web and other Micromania shareholders.(2)
  2 .3   Amendment, dated November 17, 2008, to Sale and Purchase Agreement for Micromania Acquisition listed as Exhibit 2.2 above.(3)
  3 .1   Second Amended and Restated Certificate of Incorporation.(4)
  3 .2   Amended and Restated Bylaws.(5)
  4 .1   Indenture, dated September 28, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors party thereto, and Citibank N.A., as trustee.(6)
  4 .2   First Supplemental Indenture, dated October 8, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors party thereto, and Citibank N.A., as trustee.(7)
  4 .3   Rights Agreement, dated as of June 27, 2005, between GameStop Corp. (f/k/a GSC Holdings Corp.) and The Bank of New York, as Rights Agent.(5)
  4 .4   Form of Indenture.(8)
  10 .1   Insurance Agreement, dated as of January 1, 2002, between Barnes & Noble, Inc. and GameStop Holdings Corp. (f/k/a GameStop Corp.).(9)
  10 .2   Operating Agreement, dated as of January 1, 2002, between Barnes & Noble, Inc. and GameStop Holdings Corp. (f/k/a GameStop Corp.).(9)
  10 .3   Fourth Amended and Restated 2001 Incentive Plan.(17)
  10 .4   Second Amended and Restated Supplemental Compensation Plan.(11)
  10 .5   Form of Option Agreement.(12)
  10 .6   Form of Restricted Share Agreement.(13)
  10 .7   Credit Agreement, dated as of October 11, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A. and the other lending institutions listed in the Agreement, Bank of America, N.A. and Citicorp North America, Inc., as Issuing Banks, Bank of America, N.A., as Administrative Agent and Collateral Agent, Citicorp North America, Inc., as Syndication Agent, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Documentation Agent.(14)
  10 .8   Guaranty, dated as of October 11, 2005, by GameStop Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop Corp. in favor of the agents and lenders.(14)
  10 .9   Security Agreement, dated October 11, 2005, by GameStop Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop Corp. in favor of Bank of America, N.A., as Collateral Agent for the Secured Parties.(14)
  10 .10   Patent and Trademark Security Agreement, dated as of October 11, 2005 by GameStop Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop Corp. in favor of Bank of America, N.A., as Collateral Agent.(14)
  10 .11   Mortgage, Security Agreement, and Assignment and Deeds of Trust, dated October 11, 2005, between GameStop of Texas, L.P. and Bank of America, N.A., as Collateral Agent.(14)
  10 .12   Mortgage, Security Agreement, and Assignment and Deeds of Trust, dated October 11, 2005, between Electronics Boutique of America, Inc. and Bank of America, N.A., as Collateral Agent.(14)
  10 .13   Form of Securities Collateral Pledge Agreement, dated as of October 11, 2005.(14)


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Exhibit
   
Number
 
Description
 
  10 .14   First Amendment, dated April 25, 2007, to Credit Agreement, dated as of October 11, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A. and the other lending institutions listed in the Amendment, Bank of America, N.A. and Citicorp North America, Inc., as Issuing Banks, Bank of America, N.A., as Administrative Agent and Collateral Agent, Citicorp North America, Inc., as Syndication Agent, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Documentation Agent.(15)
  10 .15   Second Amendment, dated as of October 23, 2008, to Credit Agreement, dated as of October 11, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A. and the other lending institutions listed in the Amendment, Bank of America, N.A. and Citicorp North America, Inc., as Issuing Banks, Bank of America, N.A., as Administrative Agent and Collateral Agent, Citicorp North America, Inc., as Syndication Agent, and GE Business Financial Services, Inc., as Documentation Agent.(3)
  10 .16   Term Loan Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, Bank of America, N.A., as Administrative Agent and Collateral Agent, and Banc of America Securities LLC, as Sole Arranger and Bookrunner.(3)
  10 .17   Security Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender and Bank of America, N.A., as Collateral Agent.(3)
  10 .18   Patent and Trademark Security Agreement, dated as of November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, and Bank of America, N.A., as Collateral Agent.(3)
  10 .19   Securities Collateral Pledge Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, and Bank of America, N.A., as Collateral Agent.(3)
  10 .20   Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and R. Richard Fontaine.(10)
  10 .21   Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Daniel A. DeMatteo.(10)
  10 .22   Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and David W. Carlson.(10)
  10 .23   Amendment to Amended and Restated Executive Employment Agreement, dated August 24, 2009, between GameStop Corp. and David W. Carlson.(16)
  10 .24   Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Tony Bartel.(10)
  10 .25   Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and J. Paul Raines.(10)
  10 .26   Executive Employment Agreement, dated August 24, 2009, between GameStop Corp. and Catherine Smith.(16)
  31 .1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31 .2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32 .1   Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32 .2   Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  101 .INS   XBRL Instance Document

45


Table of Contents

         
Exhibit
   
Number
 
Description
 
  101 .SCH   XBRL Taxonomy Extension Schema
  101 .CAL   XBRL Taxonomy Extension Calculation Linkbase
  101 .DEF   XBRL Taxonomy Extension Definition Linkbase
  101 .LAB   XBRL Taxonomy Extension Label Linkbase
  101 .PRE   XBRL Taxonomy Extension Presentation Linkbase
 
 
(1) Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on April 18, 2005.
 
(2) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 2, 2008.
 
(3) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 18, 2008.
 
(4) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 7, 2007.
 
(5) Incorporated by reference to the Registrant’s Amendment No. 1 to Form S-4 filed with the Securities and Exchange Commission on July 8, 2005.
 
(6) Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on September 30, 2005.
 
(7) Incorporated by reference to the Registrant’s Form 10-Q for the fiscal quarter ended October 29, 2005 filed with the Securities and Exchange Commission on December 8, 2005.
 
(8) Incorporated by reference to the Registrant’s Form S-3ASR filed with the Securities and Exchange Commission on April 10, 2006.
 
(9) Incorporated by reference to GameStop Holdings Corp.’s Amendment No. 3 to Form S-1 filed with the Securities and Exchange Commission on January 24, 2002.
 
(10) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 7, 2009.
 
(11) Incorporated by reference to Appendix A to the Registrant’s Proxy Statement for 2008 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on May 23, 2008.
 
(12) Incorporated by reference to GameStop Holdings Corp.’s Form 10-K for the fiscal year ended January 29, 2005 filed with the Securities and Exchange Commission on April 11, 2005.
 
(13) Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on September 12, 2005.
 
(14) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 12, 2005.
 
(15) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on April 26, 2007.
 
(16) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 25, 2009.
 
(17) Incorporated by reference to Appendix A to the Registrant’s Proxy Statement for 2009 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on May 22, 2009.

46

exv31w1
Exhibit 31.1
CERTIFICATION PURSUANT TO
17 CFR 240.13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel A. DeMatteo, certify that:
          1. I have reviewed this report on Form 10-Q of GameStop Corp.;
          2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
          3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
          4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
          a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
          b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
          c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
          d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
          5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
          a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
          b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
 
  By:   /s/ Daniel A. DeMatteo
 
       
 
      Daniel A. DeMatteo
 
      Chief Executive Officer
 
      GameStop Corp.
Date: December 9, 2009

 

exv31w2
Exhibit 31.2
CERTIFICATION PURSUANT TO
17 CFR 240.13a-14(a) /15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Catherine R. Smith, certify that:
          1. I have reviewed this report on Form 10-Q of GameStop Corp.;
          2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
          3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
          4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
          a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
          b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
          c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
          d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
          5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
          a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
          b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
 
  By:   /s/ Catherine R. Smith
 
       
 
      Catherine R. Smith
 
      Executive Vice President and Chief Financial Officer
 
      GameStop Corp.
Date: December 9, 2009

 

exv32w1
Exhibit 32.1
CERTIFICATION PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
          In connection with the quarterly report of GameStop Corp. (the “Company”) on Form 10-Q for the period ended October 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel A. DeMatteo, Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
          (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
          (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
     
 
  /s/ Daniel A. DeMatteo
 
   
 
  Daniel A. DeMatteo
 
  Chief Executive Officer
 
  GameStop Corp.
 
  December 9, 2009
          A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

exv32w2
Exhibit 32.2
CERTIFICATION PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
          In connection with the quarterly report of GameStop Corp. (the “Company”) on Form 10-Q for the period ended October 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Catherine R. Smith, Executive Vice President and Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
          (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
          (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
     
 
  /s/ Catherine R. Smith
 
   
 
  Catherine R. Smith
 
  Executive Vice President and
 
  Chief Financial Officer
 
  GameStop Corp.
 
  December 9, 2009
          A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.